The income elasticity of demand (YED) for a good or service is a numerical value which shows us the relationship between the quantity demanded for a product and a change in consumer’s income.
Through calculating YED, we can see how responsive the quantity demanded for a good or service is to a change in income. If the value of YED is positive, this means that the quantity demanded of a good or service will increase as income also increases. This product is therefore a normal good.
If the value of YED is negative, this means that the quantity demanded of a good or service will decrease as income increases. This product is therefore an inferior good.
YED is calculated using this formula:
% ∆ Quantity Demanded / % ∆ Income
Icons made by Surang from www.flaticon.com