ECO unit 1 review:YED

DEFINATION:the responsiveness of the demand for a product when a chenge in income



Formula:YED:%change in demand/%change in income

normal goods:have positive income elasticity

1. normal luxury:income elasticity is grerter than 1 YED>1


2. normal necessity:income elasticity is less than 1 YED<1

Inferior goods:have negative income elasticity

ECO review:tax ......demand

From the chart we can obviously see that when the demand for a product is elastic,and we draw the supply curve with tax.The supply price is higher(p1-p2),producers pay more,and quantity for this product is lower than before(q1-q2)


In this case,when the demand for the product is inelastic,supply price is higher with tax (p1-p2).Consumers pay more,and the quantity for this product is decreased,but not as same as when the demand is elastic.