1. What is likely to happen to the demand for these products when incomes rise by 15%?

2. Income Elasticity of Demand
YED measures the responsiveness of quantity demanded to a change in income
it is the mathematical relationship between ∆Y & ∆Qd
YED = %ΔQd
Books 0.1, ST 2, PT –0.333
%ΔY
A school's income increases from £1m to £2m: spending on Books increases from £100,000 to £110,000, while spending on sports team visits abroad increases from £10,000 to £30,000.  Spending on Public Transport falls from £150 to £100.
Calculate the YED of Demand for Books, Sports Trips and Public Transport 

3. Income Elasticity YED Tells us about the type of good:
for all ‘normal’ goods, YED will be positive (as we earn more, we buy more)
for ‘inferior’ goods, YED will be negative (as we earn more, we buy less) Y
Normal good
Inferior good Q

4. Income Inelastic DemandY
Income Inelastic Demand
a large income change results in only a small change in Qd
0<YED <1
found on ‘necessities’ (we buy the same amount regardless of income changes) Y1 Y0 D Q0 Q1 Q

5. Income Elastic Demand Income Elastic DemandY
Income Elastic Demand
 a small income change results in a large change in Qd
 YED>1
 found on ‘optional’ products (a little boost in income suddenly adds these items to our basket) D Y1 Y0 Q0 Q1 Q

6. Table and Examples of YED
Description
YED
Comment
YED<0
Inferior Good
Income Inelastic Demand
Necessities
Unitary YED
Income and Qd change by same %
YED>1 
Luxuries
Some examples of YED's
Automobiles 2.98
Books 1.44
Restaurant Meals 1.40
Tobacco 0.64
Margarine −0.20
Public Transportation −0.36
Income elasticities are notably stable over time and across countries