Income Elasticity of Demand (YED)

​Income elasticity of demand is the responsiveness of demand to a change in income. 

Inferior, normal and luxury goods.

• Inferior goods are goods for which demand falls as income increases e.g. ASDA smart price baked beans. For these goods YED < 0.
• Normal goods are goods for which demand increases as income increases. Examples include pasta and meats. This type of good is most common. For these goods YED > 0.
• Luxury goods are also normal goods, however an increase in income causes a higher increase in demand e.g. supercars. These goods have YED > 1.
• If YED is between -1 and 1 then the good is deemed to be relatively inelastic. However, if the YED is greater than 1 or less than -1 then the good is elastic.