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The formula for measuring Income Elasticity of Demand (YED) is: $$\frac{\Delta Q}{\Delta Y} = \frac{Y_1 + Y_2}{Q_1 + Q_2}$$ (i) Explain what each of the above symbols represent - Leaving Cert Economics - Question c - 2017
Question c
The formula for measuring Income Elasticity of Demand (YED) is: $$\frac{\Delta Q}{\Delta Y} = \frac{Y_1 + Y_2}{Q_1 + Q_2}$$ (i) Explain what each of the above symb... show full transcript
Worked Solution & Example Answer:The formula for measuring Income Elasticity of Demand (YED) is: $$\frac{\Delta Q}{\Delta Y} = \frac{Y_1 + Y_2}{Q_1 + Q_2}$$ (i) Explain what each of the above symbols represent - Leaving Cert Economics - Question c - 2017
Step 1
i) Explain what each of the above symbols represent.
Answer
- : Change in the quantity demanded of the good.
- : Change in the income of the consumer.
- : Original income of the consumer.
- : New/current income of the consumer.
- : Original quantity of the good demanded.
- : New/current quantity demanded of the good.
Step 2
ii) Would you consider the Apple iPhone 7 to be a luxury good, based on your knowledge of YED? Explain your answer.
Answer
The Income Elasticity of Demand (YED) for the Apple iPhone 7 is +2.8, indicating that it is a luxury good. Luxury goods commonly exhibit YED values greater than 1, which suggest that the percentage increase in quantity demanded is greater than the percentage increase in income. This characteristic aligns with the behavior of consumers in regard to luxury items, where as incomes rise, their demand for such products increases significantly.