Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
B) Calculation of income elasticity of demand
Full specification wording
Income elasticity of demand (YED): b) Calculation of income elasticity of demand
The calculation of income elasticity of demand (YED) requires dividing the percentage change in quantity demanded by the percentage change in income.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 2 of 4
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
The calculation of income elasticity of demand (YED) requires dividing the percentage change in quantity demanded by the percentage change in income. The formula is: YED = %ΔQD / %ΔY. To calculate the percentage change, use the formula: ((New Value - Original Value) / Original Value) × 100. For example, if consumer income increases from £20,000 to £22,000 (a 10% increase), and the quantity demanded of a good falls from 500 to 450 units (a -10% change), the YED is -10% / 10% = -1. The negative sign is crucial as it indicates an inverse relationship, identifying the product as an inferior good. Accurate calculation allows firms to classify their products as necessities (0 to 1), luxuries (> 1), or inferior (< 0) goods.
What earns the marks
- The formula for YED is the percentage change in quantity demanded divided by the percentage change in income.
- Percentage change is calculated as the change in value divided by the original value, multiplied by 100.
- The sign of the YED result (positive or negative) must always be included as it determines the classification of the good.
- A YED value between 0 and 1 indicates a normal necessity, while a value greater than 1 indicates a normal luxury good.
Common mistakes and how to put them right
Inverting the formula by dividing the percentage change in income by the percentage change in quantity demanded.
Put it right: Put quantity demanded on top.
Ignoring the negative sign in the final answer.
Put it right: The sign is essential for distinguishing between normal and inferior goods.
Calculating the absolute change instead of the percentage change before applying the YED formula.
Exam tips
- Always write down the full YED formula before substituting the numbers to ensure you do not invert the calculation.
- Double-check whether the question provides absolute figures or percentage changes; if absolute, you must calculate the percentages first.
- State the classification of the good (e.g., inferior, normal necessity) immediately after calculating the YED value to demonstrate full understanding.
Try the lesson
The start of the Income elasticity of demand (YED): b) Calculation of income elasticity of demand lesson, made from checked teaching notes for this specification point.
Have a go first
Average incomes in a region increase by 4%. As a result, the quantity demanded of a specific brand of coffee increases by 6%. What is the income elasticity of demand for this brand of coffee?
Listen
The calculation of income elasticity of demand (YED) requires dividing the percentage change in quantity demanded by the percentage change in income. The formula is: YED = %ΔQD / %ΔY. To calculate the percentage change, use the formula: ((New Value - Original Value) / Original Value) × 100. For example, if consumer income increases from £20,000 to £22,000 (a 10% increase), and the quantity demanded of a good falls from 500 to 450 units (a -10% change), the YED is -10% / 10% = -1. The negative sign is crucial as it indicates an inverse relationship, identifying the product as an inferior good. Accurate calculation allows firms to classify their products as necessities (0 to 1), luxuries (> 1), or inferior (< 0) goods. A strong answer earns marks for these points. The formula for YED is the percentage change in quantity demanded divided by the percentage change in income. Percentage change is calculated as the change in value divided by the original value, multiplied by 100. The sign of the YED result (positive or negative) must always be included as it determines the classification of the good. A YED value between 0 and 1 indicates a normal necessity, while a value greater than 1 indicates a normal luxury good. Exam tip: Always write down the full YED formula before substituting the numbers to ensure you do not invert the calculation.
See it
Key words
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Income elasticity of demand (YED)
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Percentage change
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Inferior good
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Normal luxury good
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See every definition
- Income elasticity of demand (YED)
- Calculated by dividing the percentage change in quantity demanded by the percentage change in income.
- Percentage change
- Calculated as the change in value divided by the original value, multiplied by 100.
- Inferior good
- Identified by a negative YED sign, which indicates an inverse relationship between income and quantity demanded.
- Normal luxury good
- A good whose YED value is greater than 1.
Label the diagram
Some boxes have lost their names. Pick the right name for each number.
1Box 1
2Box 2
3Box 3
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