Income Elasticity of Demand (YED)

    AQA
    GCSE

    Income Elasticity of Demand (YED) measures the responsiveness of quantity demanded to a change in real income. Mastery requires precise calculation using the percentage change formula and the interpretation of coefficients to classify goods as normal, inferior, or luxury. Analysis must extend to the implications of YED for business strategy during economic cycles and the structural transformation of economies (sectoral shifts) as development occurs.

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    Objectives
    4
    Exam Tips
    3
    Pitfalls
    3
    Key Terms
    4
    Mark Points

    What You Need to Demonstrate

    Key skills and knowledge for this topic

    • Award marks for accurate statement and application of the formula: % change in quantity demanded divided by % change in income
    • Credit identification of goods as normal (positive YED) or inferior (negative YED) based on data
    • Reward analysis of how changing incomes (booms/recessions) affect demand for specific product types
    • Assess evaluation of business strategies, such as product portfolio diversification, in response to income forecasts

    Marking Points

    Key points examiners look for in your answers

    • Award marks for accurate statement and application of the formula: % change in quantity demanded divided by % change in income
    • Credit identification of goods as normal (positive YED) or inferior (negative YED) based on data
    • Reward analysis of how changing incomes (booms/recessions) affect demand for specific product types
    • Assess evaluation of business strategies, such as product portfolio diversification, in response to income forecasts

    Examiner Tips

    Expert advice for maximising your marks

    • 💡Always state the formula and show full working out, even if the final answer is incorrect, to secure method marks
    • 💡When evaluating, link YED values explicitly to the economic climate (e.g., 'In a recession, demand for inferior goods rises')
    • 💡Use the terms 'income elastic' (YED > 1) and 'income inelastic' (YED < 1) correctly to describe sensitivity
    • 💡Check the sign of your final answer; a negative YED implies an inferior good, which requires specific analysis

    Common Mistakes

    Pitfalls to avoid in your exam answers

    • Confusing the formula with Price Elasticity of Demand (PED) or inverting the numerator and denominator
    • Ignoring the negative sign when calculating or interpreting YED for inferior goods
    • Failing to distinguish between 'necessities' (YED < 1) and 'luxuries' (YED > 1) within the normal goods category

    Key Terminology

    Essential terms to know

    Likely Command Words

    How questions on this topic are typically asked

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