Topic:

 Income  Elasticity  of  Demand  

 
 Q1  

Define  Income  Elasticity  of  Demand  (including  the  word:  ‘responsiveness’):  

Income  Elasticity  of  Demand  (YED)  is  calculated  by:                                                

Q2  

UK  average  income  rises  from  £25k  to  £30k  and  as  a  result  demand  for  3D  TVs  rises  from  200,000  
units  to  300,000  units.  Calculate  YED  (show  your  working):  

Is  the  demand  for  3D  TVs  income  elastic  or  inelastic?  

Explain  why:  

Plot  the  demand  curve  based  on  the  information  above  (fully  label  the  diagram):  

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Topic:  Income  Elasticity  of  Demand  
 
Q3  

In  the  UK,  a  survey  was  done  which  calculated  that  ‘normal’  lager  had  a  YED  of  +0.6  whilst  ‘premium’  
lager  had  a  YED  of  +1.5.  Using  the  data  explain  why  this  might  be  the  case  

Q4  

True  or  False  

YED  for  a  normal  good  should  be  negative    

 
YED  for  a  luxury  good  should  be  positive  and  greater  than  1    
 
YED  for  an  inferior  good  should  be  negative    
 
The  London  Underground  is  estimated  to  have  a  YED  +0.2.  This  is    
because  it  is  income  inelastic  
 
 

Q5  

In  recent  years,  demand  for  French  wine  in  China  has  increased  significantly.  Explain,  using  YED,  why  
this  is  the  case  and  estimate  YED.  You  can  use  your  phone,  tablet,  PC  to  help  you  

   

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Topic:  Income  Elasticity  of  Demand  
 
Q6  

Average  weekly  expenditure  on  cigarettes  in  the  UK,  in  2013,  by  gross  decile  group  (in  GBP)  

5   4.7  
Average  weekly  household  expenditure  in  GBP  

4.5   4.2  
4   4.1  
3.9   3.8  
4  

3.5  
2.9  
3   2.7  
2.5  
2.5   2.3  

2  

1.5  

1  

0.5  

0  
Lowest   Second   Third   Fourth   Fi^h   Sixth   Seventh   Eighth   Ninth   Highest  
10  per   decile   Decile   Decile   Decide   Decile   Decile   Decile   Decile   10  per  
cent   group   group   Group   group   Group   Group   group   Group   cent  
 

Source:  ONS  

Look  at  the  chart  above  regarding  the  weekly  consumption  of  cigarettes  in  the  UK  by  gross  decile  
group.  

Does  this  chart  suggest  that  cigarettes  can  be  considered  a  normal,  inferior  or  superior  product?    
Explain  your  answer.    

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