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<title>DP Economics: Unit 2.5: Income elasticity of demand (YED)</title>
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style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35118/unit-2111-market-power-theory-of-production-and-costs-hl.html" title="Unit 2.11(1) Market power - Theory of production and costs (HL)">Unit 2.11(1) Market power - Theory of production and costs (HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35125/unit-2112-market-power-perfect-competitionhl.html" title="Unit 2.11(2) Market power - Perfect competition(HL)">Unit 2.11(2) Market power - Perfect competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35147/unit-2113-market-power-monopolyhl.html" title="Unit 2.11(3) Market power - Monopoly(HL)">Unit 2.11(3) Market power - Monopoly(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35151/unit-2114-market-power-monopolistic-competitionhl.html" title="Unit 2.11(4) Market power - Monopolistic competition(HL)">Unit 2.11(4) Market power - Monopolistic competition(HL)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35153/unit-2115-market-power-oligopolyhl.html" title="Unit 2.11(5) Market power - Oligopoly(HL)">Unit 2.11(5) Market power - Oligopoly(HL)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41603/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43378/opportunity-cost-and-production-possibility-curves.html" title="Opportunity cost and production possibility curves">Opportunity cost and production possibility curves</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42559/demand-theory.html" title="Demand theory">Demand theory</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41886/the-price-mechanism.html" title="The price mechanism">The price mechanism</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43188/market-demand-and-supply.html" title="Market demand and supply">Market demand and supply</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41705/demerit-goods.html" title="Demerit goods">Demerit goods</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42275/market-failure-and-climate-change.html" title="Market failure and climate change">Market failure and climate change</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42925/market-power.html" title="Market power">Market power</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42099/applying-game-theory.html" title="Applying game theory">Applying game theory</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../34407/chapter-3-macroeconomics.html" title="Chapter 3: Macroeconomics">Chapter 3: Macroeconomics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34355/unit-311-measuring-the-level-of-economic-activity.html" title="Unit 3.1(1): Measuring the level of economic activity">Unit 3.1(1): Measuring the level of economic activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34432/unit-312-measuring-economic-development.html" title="Unit 3.1(2): Measuring Economic Development">Unit 3.1(2): Measuring Economic Development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34485/unit-321-variations-in-economic-activity-aggregate-demand-ad-.html" title="Unit 3.2(1): Variations in economic activity - aggregate demand (AD) ">Unit 3.2(1): Variations in economic activity - aggregate demand (AD) </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34487/unit-322-variations-in-economic-activity-aggregate-supplyas.html" title="Unit 3.2(2): Variations in economic activity - aggregate supply(AS)">Unit 3.2(2): Variations in economic activity - aggregate supply(AS)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34758/unit-331-macroeconomic-objectives-economic-growth.html" title="Unit 3.3(1) Macroeconomic objectives: economic growth">Unit 3.3(1) Macroeconomic objectives: economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34771/unit-332-macroeconomic-objectives-unemployment-.html" title="Unit 3.3(2) Macroeconomic objectives: unemployment ">Unit 3.3(2) Macroeconomic objectives: unemployment </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34778/unit-333-macroeconomic-objectives-inflation-and-deflation--1.html" title="Unit 3.3(3) Macroeconomic objectives: inflation and deflation ">Unit 3.3(3) Macroeconomic objectives: inflation and deflation </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34925/unit-341-economics-of-inequality-and-poverty-1.html" title="Unit 3.4(1) Economics of inequality and poverty">Unit 3.4(1) Economics of inequality and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34946/unit-342-policies-to-improve-equality-equity-and-poverty.html" title="Unit 3.4(2) Policies to improve equality, equity and poverty">Unit 3.4(2) Policies to improve equality, equity and poverty</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34993/unit-35-government-management-of-the-economy-monetary-policy-1.html" title="Unit 3.5 Government management of the economy – monetary policy">Unit 3.5 Government management of the economy – monetary policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../34962/unit-36-government-management-of-the-economy-fiscal-policy-1.html" title="Unit 3.6 Government management of the economy – fiscal policy">Unit 3.6 Government management of the economy – fiscal policy</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35017/unit-371-market-based-supply-side-policies--1.html" title="Unit 3.7(1) Market based supply-side policies ">Unit 3.7(1) Market based supply-side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35018/unit-372-interventionist-supply-side-policies-.html" title="Unit 3.7(2) Interventionist supply-side policies ">Unit 3.7(2) Interventionist supply-side policies </a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45803/economics-real-world-examples-and-extension-material--1.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42639/measuring-economic-well-being-1.html" title="Measuring economic well-being">Measuring economic well-being</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43044/inflation.html" title="Inflation">Inflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../42350/inequality.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41639/inequity-1.html" title="Inequity">Inequity</a></li></ul></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../35414/chapter-4-the-global-economy.html" title="Chapter 4: The Global Economy">Chapter 4: The Global Economy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35346/unit-41-benefits-of-international-trade-1.html" title="Unit 4.1 Benefits of international trade">Unit 4.1 Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35348/unit-4243-trade-protectionism-1.html" title="Unit 4.2/4.3 Trade protectionism">Unit 4.2/4.3 Trade protectionism</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35407/unit-44-economic-integration-.html" title="Unit 4.4 Economic integration ">Unit 4.4 Economic integration </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35409/unit-45-exchange-rates-1.html" title="Unit 4.5 Exchange rates">Unit 4.5 Exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35413/unit-46-balance-of-payments--1.html" title="Unit 4.6 Balance of payments ">Unit 4.6 Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35675/unit-47-sustainable-development.html" title="Unit 4.7 Sustainable development">Unit 4.7 Sustainable development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35685/unit-48-measuring-development--1.html" title="Unit 4.8 Measuring development ">Unit 4.8 Measuring development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35687/unit-49-barriers-to-economic-development-1.html" title="Unit 4.9 Barriers to economic development">Unit 4.9 Barriers to economic development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../35702/unit-410-economic-growth-and-economic-development-strategies.html" title="Unit 4.10: Economic growth and economic development strategies">Unit 4.10: Economic growth and economic development strategies</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../45804/economics-real-world-examples-and-extension-material-.html" title="Economics real world examples and extension material ">Economics real world examples and extension material </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41927/foreign-currency-1.html" title="Foreign currency">Foreign currency</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43532/exchange-rates-1.html" title="Exchange rates">Exchange rates</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../43804/balance-of-payments.html" title="Balance of payments">Balance of payments</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../41796/economic-development-1.html" title="Economic development">Economic development</a></li></ul></ul></ul><li class="ancestor parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../20132/units-1-2-microeconomics.html" title="Units 1-2: Microeconomics">Units 1-2: Microeconomics</a></li><ul class="level-1 expanded"><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 1: Introduction to economics">Unit 1: Introduction to economics</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20091/introductory-activity-1.html" title="Introductory activity">Introductory activity</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20093/unit-11-scarcity-choice-and-opportunity-cost.html" title="Unit 1.1: Scarcity, choice and opportunity cost">Unit 1.1: Scarcity, choice and opportunity cost</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21647/factors-of-production-1.html" title="Factors of production">Factors of production</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20114/economic-systems.html" title="Economic systems">Economic systems</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20134/public-and-private-sectors-1.html" title="Public and private sectors">Public and private sectors</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28055/unit-12-economics-as-a-social-science-1.html" title="Unit 1.2: Economics as a social science">Unit 1.2: Economics as a social science</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29921/circular-flow-of-national-income.html" title="Circular flow of national income">Circular flow of national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29829/unit-1-review-terms-1.html" title="Unit 1: Review terms">Unit 1: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../41600/introduction-to-economics-crossword-1.html" title="Introduction to economics crossword">Introduction to economics crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../4331/unit-1-multiple-choice-quiz.html" title="Unit 1: Multiple choice quiz">Unit 1: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20177/unit-21-23-competitive-markets-demand-and-supply-1.html" title="Unit 2.1-2.3: Competitive markets - demand and supply">Unit 2.1-2.3: Competitive markets - demand and supply</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28517/unit-21-demand-1.html" title="Unit 2.1: Demand">Unit 2.1: Demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22349/determinants-of-demand-1.html" title="Determinants of demand">Determinants of demand</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29949/unit-22-supply-.html" title="Unit 2.2: Supply ">Unit 2.2: Supply </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20184/changes-to-supply-and-demand-.html" title="Changes to supply and demand ">Changes to supply and demand </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21992/practise-exercises-1.html" title="Practise exercises">Practise exercises</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../26112/gold-exchange-game-demand-and-supply-1.html" title="Gold exchange game: Demand and supply">Gold exchange game: Demand and supply</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20194/unit-23-competitive-market-equilibrium-1.html" title="Unit 2.3: Competitive market equilibrium">Unit 2.3: Competitive market equilibrium</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20144/producer-and-consumer-surplus-1.html" title="Producer and consumer surplus">Producer and consumer surplus</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22351/veblen-goods-and-super-luxury-goods-1.html" title="Veblen goods and super luxury goods">Veblen goods and super luxury goods</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../25677/are-cryptocurrencies-the-new-tulipmania.html" title="Are Cryptocurrencies the new Tulipmania?">Are Cryptocurrencies the new Tulipmania?</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20472/unit-21-23-multiple-choice-quiz.html" title="Unit 2.1-2.3: Multiple choice quiz">Unit 2.1-2.3: Multiple choice quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20113/unit-24-consumer-and-producer-behaviour-hl-only-1.html" title="Unit 2.4: Consumer and producer behaviour (HL only)">Unit 2.4: Consumer and producer behaviour (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../36073/behavioural-economics-consumer-biases-nudge-theory-hl-only-1.html" title="Behavioural economics: Consumer biases / nudge theory (HL only)">Behavioural economics: Consumer biases / nudge theory (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20378/business-objectives-hl-only.html" title="Business objectives (HL only)">Business objectives (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28741/unit-21-24-review-terms--1.html" title="Unit 2.1-2.4: Review terms ">Unit 2.1-2.4: Review terms </a></li></ul><li class="ancestor parent" style="padding-left: 14px"><i class="expander fa fa-caret-right fa-rotate-90"></i><a class="" href="../20195/unit-25-26-elasticity-1.html" title="Unit 2.5-2.6: Elasticity">Unit 2.5-2.6: Elasticity</a></li><ul class="level-2 expanded"><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../28713/unit-25-price-elasticity-of-demand-1.html" title="Unit 2.5: Price elasticity of demand">Unit 2.5: Price elasticity of demand</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21545/determinants-of-price-elasticity-.html" title="Determinants of price elasticity ">Determinants of price elasticity </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21532/ped-elasticity-and-sales-revenue.html" title="PED elasticity and sales revenue?">PED elasticity and sales revenue?</a></li></ul><li class="current" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="unit-25-income-elasticity-of-demand-yed.html" title="Unit 2.5: Income elasticity of demand (YED)">Unit 2.5: Income elasticity of demand (YED)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21200/unit-26-price-elasticity-of-supply.html" title="Unit 2.6: Price elasticity of supply">Unit 2.6: Price elasticity of supply</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20207/perfectly-elastic-inelastic-supply-curves.html" title="Perfectly elastic / inelastic supply curves">Perfectly elastic / inelastic supply curves</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20230/a-mathematical-note-about-elasticity-.html" title="A mathematical note about elasticity ">A mathematical note about elasticity </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39037/demand-and-supply-crossword.html" title="Demand and supply crossword">Demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29021/unit-25-26-review-terms-1.html" title="Unit 2.5-2.6: Review terms">Unit 2.5-2.6: Review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20474/unit-25-26-multiple-choice-quiz--1.html" title="Unit 2.5-2.6: Multiple choice quiz ">Unit 2.5-2.6: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44474/unit-21-25-competitive-markets-quiz-1.html" title="Unit 2.1- 2.5: Competitive markets quiz">Unit 2.1- 2.5: Competitive markets quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20243/unit-27-the-role-of-government-in-microeconomics--1.html" title="Unit 2.7: The role of government in microeconomics ">Unit 2.7: The role of government in microeconomics </a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26590/indirect-taxation.html" title="Indirect taxation">Indirect taxation</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20246/ped-and-the-burden-of-tax-hl-only-.html" title="PED and the burden of tax (HL only) ">PED and the burden of tax (HL only) </a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20277/government-subsidies--1.html" title="Government subsidies ">Government subsidies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29117/unit-27-indirect-tax-and-subsidy-review-terms-1.html" title="Unit 2.7: Indirect tax and subsidy review terms">Unit 2.7: Indirect tax and subsidy review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20287/price-controls-maximum-price--1.html" title="Price controls − maximum price ">Price controls − maximum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20288/minimum-price-.html" title="Minimum price ">Minimum price </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21540/minimum-wage-.html" title="Minimum wage ">Minimum wage </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38849/labour-market-crossword-1.html" title="Labour market crossword">Labour market crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29260/unit-27-price-controls-review-terms-1.html" title="Unit 2.7: Price controls review terms">Unit 2.7: Price controls review terms</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20303/unit-28-210-market-failure--1.html" title="Unit 2.8-2.10: Market failure ">Unit 2.8-2.10: Market failure </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21543/unit-28-merit-goods--1.html" title="Unit 2.8: Merit goods ">Unit 2.8: Merit goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23123/unit-28-demerit-goods-negative-externalities-1.html" title="Unit 2.8: Demerit goods / negative externalities">Unit 2.8: Demerit goods / negative externalities</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../38850/market-failure-crossword-1.html" title="Market failure crossword">Market failure crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29262/unit-29-economics-of-the-environment-and-public-goods--1.html" title="Unit 2.9: Economics of the environment and public goods ">Unit 2.9: Economics of the environment and public goods </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20332/unit-210-asymmetric-information-hl-only-1.html" title="Unit 2.10: Asymmetric information (HL only)">Unit 2.10: Asymmetric information (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29828/unit-28-210-market-failure-review-sheet.html" title="Unit 2.8-2.10: Market failure review sheet">Unit 2.8-2.10: Market failure review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29827/unit-28-210-market-failure-review-terms.html" title="Unit 2.8-2.10: Market failure review terms">Unit 2.8-2.10: Market failure review terms</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20479/unit-27-210-multiple-choice-quiz--1.html" title="Unit 2.7-2.10: Multiple choice quiz ">Unit 2.7-2.10: Multiple choice quiz </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44501/unit-27-210-government-failure-revision-quiz-1.html" title="Unit 2.7-2.10 Government failure revision quiz">Unit 2.7-2.10 Government failure revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20330/unit-211-market-power-hl-only-1.html" title="Unit 2.11: Market power (HL only)">Unit 2.11: Market power (HL only)</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29835/assessment-map.html" title="Assessment map">Assessment map</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21528/production-hl-only.html" title="Production (HL only)">Production (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29978/revenue-theory-hl-only.html" title="Revenue theory (HL only)">Revenue theory (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20357/costs-of-production-hl-only.html" title="Costs of production (HL only)">Costs of production (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21286/economies-and-diseconomies-of-scale-hl-only.html" title="Economies and diseconomies of scale (HL only)">Economies and diseconomies of scale (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22494/long-run-average-cost-curves-hl-only.html" title="Long run average cost curves (HL only)">Long run average cost curves (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../29838/breakeven-hl-only.html" title="Breakeven (HL only)">Breakeven (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20340/economic-profit-hl-only.html" title="Economic profit (HL only)">Economic profit (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39082/market-power-crossword.html" title="Market power crossword">Market power crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../22495/revision-exercise-on-cost-and-revenue-hl-only.html" title="Revision exercise on cost and revenue (HL only)">Revision exercise on cost and revenue (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29845/unit-211-costs-revenue-and-profit-review-sheet-hl-only.html" title="Unit 2.11: Costs, revenue and profit review sheet (HL only)">Unit 2.11: Costs, revenue and profit review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44484/unit-211-multiple-choice-quiz-sl-units-1.html" title="Unit 2.11: Multiple choice quiz (SL units)">Unit 2.11: Multiple choice quiz (SL units)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29846/market-structures-hl-only-1.html" title="Market structures (HL only)">Market structures (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29981/perfect-competition-hl-only-1.html" title="Perfect competition (HL only)">Perfect competition (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24486/profit-in-perfect-competition-hl-only-1.html" title="Profit in perfect competition (HL only)">Profit in perfect competition (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21302/efficiency-in-perfect-competition-hl-only.html" title="Efficiency in perfect competition (HL only)">Efficiency in perfect competition (HL only)</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20430/monopoly-hl-only-1.html" title="Monopoly (HL only)">Monopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../24529/profit-and-revenue-maximisation-in-monopoly-hl-only-1.html" title="Profit and revenue maximisation in monopoly (HL only)">Profit and revenue maximisation in monopoly (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21306/a-comparison-of-monopoly-and-perfect-competition-hl-only-1.html" title="A comparison of monopoly and perfect competition? (HL only)">A comparison of monopoly and perfect competition? (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20435/monopolistic-competition-hl-only-1.html" title="Monopolistic competition (HL only)">Monopolistic competition (HL only)</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20436/oligopoly-hl-only-1.html" title="Oligopoly (HL only)">Oligopoly (HL only)</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../22310/game-theory-hl-only-1.html" title="Game theory (HL only)">Game theory (HL only)</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29918/unit-211-market-structures-review-sheet-hl-only-1.html" title="Unit 2.11: Market structures review sheet (HL only)">Unit 2.11: Market structures review sheet (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32337/unit-211-diagram-revision-.html" title="Unit 2.11: Diagram revision ">Unit 2.11: Diagram revision </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20480/unit-211-multiple-choice-quiz-hl-only-1.html" title="Unit 2.11: Multiple choice quiz (HL only)">Unit 2.11: Multiple choice quiz (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32425/unit-212-the-markets-inability-to-achieve-equity-hl-only-1.html" title="Unit 2.12: The market’s inability to achieve equity (HL only)">Unit 2.12: The market’s inability to achieve equity (HL only)</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21842/unit-3-macroeconomics-.html" title="Unit 3: Macroeconomics ">Unit 3: Macroeconomics </a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../3942/unit-31-measuring-economic-activity-and-illustrating-its-variati-1.html" title="Unit 3.1: Measuring economic activity and illustrating its variations">Unit 3.1: Measuring economic activity and illustrating its variations</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20558/calculating-national-income-1.html" title="Calculating national income">Calculating national income</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21297/gdp-gni-as-a-measure-of-living-standards.html" title="GDP / GNI as a measure of living standards">GDP / GNI as a measure of living standards</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20567/national-income-statistics-1.html" title="National income statistics">National income statistics</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21580/the-business-cycle-1.html" title="The business cycle">The business cycle</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29931/unit-31-economic-activity-review-sheet-1.html" title="Unit 3.1: Economic activity review sheet">Unit 3.1: Economic activity review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20592/unit-32-variations-in-economic-activityaggregate-demand-and-aggr-1.html" title="Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply">Unit 3.2: Variations in economic activity—aggregate demand and aggregate supply</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../29933/aggregate-demand-and-supply.html" title="Aggregate demand and supply">Aggregate demand and supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21582/components-of-aggregate-demand-1.html" title="Components of aggregate demand">Components of aggregate demand</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20634/equilibrium-in-macroeconomics-neo-classical-perspective-1.html" title="Equilibrium in macroeconomics (neo-classical perspective)">Equilibrium in macroeconomics (neo-classical perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20439/equilibrium-in-macroeconomics-keynesian-perspective-1.html" title="Equilibrium in macroeconomics (keynesian perspective)">Equilibrium in macroeconomics (keynesian perspective)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21349/john-maynard-keynes-1.html" title="John Maynard Keynes">John Maynard Keynes</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20650/keynesian-v-free-market-debate--1.html" title="Keynesian v free market debate ">Keynesian v free market debate </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21342/changes-in-the-long-run-aggregate-supply-1.html" title="Changes in the long run aggregate supply">Changes in the long run aggregate supply</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30055/unit-32-aggregate-demand-and-supply-review-sheet-1.html" title="Unit 3.2: Aggregate demand and supply review sheet">Unit 3.2: Aggregate demand and supply review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20610/unit-35-and-36-demand-management-fiscal-and-monetary-policy-1.html" title="Unit 3.5 and 3.6: Demand management - fiscal and monetary policy">Unit 3.5 and 3.6: Demand management - fiscal and monetary policy</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30058/government-budget.html" title="Government budget">Government budget</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21585/fiscal-policy--1.html" title="Fiscal policy ">Fiscal policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21343/multiplier-hl-only.html" title="Multiplier (HL only)">Multiplier (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21795/monetary-policy--1.html" title="Monetary policy ">Monetary policy </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30071/independent-central-banks-1.html" title="Independent central banks">Independent central banks</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30083/unit-35-and-36-review-sheet.html" title="Unit 3.5 and 3.6 review sheet">Unit 3.5 and 3.6 review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20615/unit-37-supply-side-policies-1.html" title="Unit 3.7: Supply side policies">Unit 3.7: Supply side policies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20651/the-role-of-supply-side-policies-1.html" title="The role of supply side policies">The role of supply side policies</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20622/market-based-and-interventionist-supply-side-policies--1.html" title="Market based and interventionist supply side policies ">Market based and interventionist supply side policies </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39129/aggregate-demand-and-supply-crossword-1.html" title="Aggregate demand and supply crossword">Aggregate demand and supply crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30086/unit-37-review-sheet-1.html" title="Unit 3.7: Review sheet">Unit 3.7: Review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20755/unit-31-32-and-35-37-multiple-choice-quiz--1.html" title="Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz ">Unit 3.1-3.2 and 3.5-3.7: Multiple choice quiz </a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../44522/unit-31-32-and-35-37-revision-quiz-1.html" title="Unit 3.1-3.2 and 3.5-3.7: Revision quiz">Unit 3.1-3.2 and 3.5-3.7: Revision quiz</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20686/unit-33-macroeconomic-objectives.html" title="Unit 3.3: Macroeconomic objectives">Unit 3.3: Macroeconomic objectives</a></li><ul class="level-2 "><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30118/unemployment.html" title="Unemployment">Unemployment</a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21351/types-of-unemployment.html" title="Types of unemployment?">Types of unemployment?</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21593/equilibrium-unemployment-.html" title="Equilibrium unemployment ">Equilibrium unemployment </a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../21594/disequilibrium-unemployment-1.html" title="Disequilibrium unemployment">Disequilibrium unemployment</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30458/unemployment-review-sheet-1.html" title="Unemployment review sheet">Unemployment review sheet</a></li></ul><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20713/inflation--1.html" title="Inflation ">Inflation </a></li><ul class="level-3 "><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20712/measuring-inflation-hl-only-1.html" title="Measuring inflation (HL only)">Measuring inflation (HL only)</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../20685/costs-of-inflation-and-deflation-1.html" title="Costs of inflation and deflation">Costs of inflation and deflation</a></li><li class="" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="" href="../30465/inflation-review-sheet.html" title="Inflation review sheet">Inflation review sheet</a></li></ul><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20716/unemployment-v-inflation-trade-off-hl-only-1.html" title="Unemployment v inflation trade off (HL only)">Unemployment v inflation trade off (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../39133/macroeconomic-objectives-crossword-1.html" title="Macroeconomic objectives crossword">Macroeconomic objectives crossword</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../44511/unit-33-macroeconomic-indicators-revision-quiz-1.html" title="Unit 3.3: Macroeconomic indicators revision quiz">Unit 3.3: Macroeconomic indicators revision quiz</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20741/unit-34-economics-of-inequality-and-poverty-1.html" title="Unit 3.4: Economics of inequality and poverty">Unit 3.4: Economics of inequality and poverty</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32398/inequality-1.html" title="Inequality">Inequality</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21356/the-role-of-spending-and-taxation-on-inequality--1.html" title="The role of spending and taxation on inequality ">The role of spending and taxation on inequality </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21313/consequences-of-economic-growth-1.html" title="Consequences of economic growth">Consequences of economic growth</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30257/economic-growth-and-inequality-review-sheet-1.html" title="Economic growth and inequality review sheet">Economic growth and inequality review sheet</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20756/unit-33-34-multiple-choice-.html" title="Unit 3.3-3.4: Multiple choice ">Unit 3.3-3.4: Multiple choice </a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21844/unit-4-global-economy.html" title="Unit 4: Global economy">Unit 4: Global economy</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../21367/unit-41-benefits-of-international-trade.html" title="Unit 4.1: Benefits of international trade">Unit 4.1: Benefits of international trade</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30529/benefits-of-international-trade.html" title="Benefits of international trade">Benefits of international trade</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20823/absolute-and-comparative-advantage-hl-only-1.html" title="Absolute and comparative advantage (HL only)">Absolute and comparative advantage (HL only)</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20845/unit-42-43-trade-protection-1.html" title="Unit 4.2-4.3: Trade protection">Unit 4.2-4.3: Trade protection</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32419/barriers-to-trade-calculations-are-hl-only-1.html" title="Barriers to trade (calculations are HL only)">Barriers to trade (calculations are HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21610/case-study-on-tata-steel-1.html" title="Case study on Tata Steel">Case study on Tata Steel</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../23455/the-defence-industry-1.html" title="The Defence industry">The Defence industry</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30610/unit-41-43-review-sheet-1.html" title="Unit 4.1-4.3: Review sheet">Unit 4.1-4.3: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20894/unit-44-economic-integration--1.html" title="Unit 4.4: Economic integration ">Unit 4.4: Economic integration </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30634/economic-integration-some-hl-tasks-1.html" title="Economic integration (some HL tasks)">Economic integration (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20840/world-trade-organisation-wto-1.html" title="World trade organisation (WTO)">World trade organisation (WTO)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30635/unit-44-review-sheet-1.html" title="Unit 4.4: Review sheet">Unit 4.4: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20853/unit-45-exchange-rates-1.html" title="Unit 4.5: Exchange rates">Unit 4.5: Exchange rates</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30611/floating-exchange-rates-1.html" title="Floating exchange rates">Floating exchange rates</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../31824/fixed-managed-exchange-rate-systems-some-hl-tasks-1.html" title="Fixed / managed exchange rate systems (some HL tasks)">Fixed / managed exchange rate systems (some HL tasks)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21624/the-market-for-foreign-exchange-1.html" title="The market for foreign exchange">The market for foreign exchange</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30614/unit-45-review-sheet-1.html" title="Unit 4.5: Review sheet">Unit 4.5: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20859/unit-46-balance-of-payments-1.html" title="Unit 4.6: Balance of payments">Unit 4.6: Balance of payments</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30624/balance-of-payments--1.html" title="Balance of payments ">Balance of payments </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21386/current-account-hl-only-1.html" title="Current account (HL only)">Current account (HL only)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20872/the-marshall-lerner-condition-j-curve-hl-only-1.html" title="The Marshall-Lerner condition / J curve (HL only)">The Marshall-Lerner condition / J curve (HL only)</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20899/units-41-46-multiple-choice-quiz--1.html" title="Units 4.1-4.6: Multiple choice quiz ">Units 4.1-4.6: Multiple choice quiz </a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../42989/unit-41-46-multiple-choice-quiz-ii-1.html" title="Unit 4.1-4.6: Multiple choice quiz II">Unit 4.1-4.6: Multiple choice quiz II</a></li><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../39438/unit-41-46-international-trade-crossword-1.html" title="Unit 4.1-4.6: International trade crossword">Unit 4.1-4.6: International trade crossword</a></li><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32423/unit-47-sustainable-development--1.html" title="Unit 4.7: Sustainable development ">Unit 4.7: Sustainable development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../26092/water-scarcity-activity-1.html" title="Water scarcity activity">Water scarcity activity</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../32426/sustainable-development.html" title="Sustainable development">Sustainable development</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../20928/unit-48-measuring-development--1.html" title="Unit 4.8: Measuring development ">Unit 4.8: Measuring development </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30686/measuring-development-1.html" title="Measuring development">Measuring development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21627/economic-development--1.html" title="Economic development ">Economic development </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30679/unit-47-48-review-sheet.html" title="Unit 4.7-4.8: Review sheet">Unit 4.7-4.8: Review sheet</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Unit 4.9: Barriers to development">Unit 4.9: Barriers to development</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30727/barriers-to-development-in-international-trade-1.html" title="Barriers to development in International trade">Barriers to development in International trade</a></li></ul><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32430/unit-410-economic-growth-andor-economic-development-strategies-1.html" title="Unit 4.10: Economic growth and/or economic development strategies">Unit 4.10: Economic growth and/or economic development strategies</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30687/the-role-of-domestic-factors-1.html" title="The role of domestic factors">The role of domestic factors</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30688/the-role-of-international-trade-and-development-1.html" title="The role of international trade and development">The role of international trade and development</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30689/the-role-of-foreign-direct-investment-fdi-1.html" title="The role of foreign direct investment (FDI)">The role of foreign direct investment (FDI)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25240/the-role-of-foreign-aid--1.html" title="The role of foreign aid ">The role of foreign aid </a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30819/multilateral-development-assistance-1.html" title="Multilateral development assistance">Multilateral development assistance</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21632/the-role-of-international-debt-1.html" title="The role of international debt">The role of international debt</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../25242/the-balance-between-markets-and-intervention-1.html" title="The balance between markets and intervention">The balance between markets and intervention</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../30926/unit-49-410-review-sheet.html" title="Unit 4.9 - 4.10: Review sheet">Unit 4.9 - 4.10: Review sheet</a></li></ul></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../21380/assessment.html" title="Assessment">Assessment</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Internal assessment ">Internal assessment </a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../20608/how-to-write-your-ia-student-handout.html" title="How to write your IA? 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(student handout)</a></li><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../21428/how-to-interpret-the-assessment-criteria-1.html" title="How to interpret the assessment criteria?">How to interpret the assessment criteria?</a></li><li class=" parent" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Grading practise ">Grading practise </a></li><ul class="level-3 "><li class=" parent" style="padding-left: 42px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Sample 3a">Sample 3a</a></li><ul class="level-4 "><li class="" style="padding-left: 56px"><i class="expander fa fa-caret-right "></i><a class="" href="../32083/sample-3b-1.html" title="Sample 3b">Sample 3b</a></li></ul></ul></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../32022/assessment-markbands-1.html" title="Assessment markbands">Assessment markbands</a></li></ul><li class=" parent std-toplevel" style="padding-left: 4px"><i class="expander fa fa-caret-right "></i><a class="" href="../4332/exam-style-questions.html" title="Exam style questions">Exam style questions</a></li><ul class="level-1 "><li class=" parent" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="std-disabled" href="#" title="Paper 1 style examination questions">Paper 1 style examination questions</a></li><ul class="level-2 "><li class="" style="padding-left: 28px"><i class="expander fa fa-caret-right "></i><a class="" href="../40100/unit-211-212-questions.html" title="Unit 2.11-2.12 questions">Unit 2.11-2.12 questions</a></li></ul><li class="" style="padding-left: 14px"><i class="expander fa fa-caret-right "></i><a class="" href="../45102/paper-1-guidance-on-essay-writing-1.html" title="Paper 1 guidance on essay writing">Paper 1 guidance on essay writing</a></li></ul></ul></nav> </div> </div> </div> </div><div style="margin-top: 20px;"><style type="text/css">
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<div id="main-column" class="span9"> <article id="unit-25-income-elasticity-of-demand-yed" style="margin-top: 16px;">
<h1 class="section-title">Unit 2.5: Income elasticity of demand (YED)</h1>
<ul class="breadcrumb"><li><a title="Home" href="../../../economics.html"><i class="fa fa-home"></i></a><span class="divider">/</span></li><li><span class="gray">Units 1-2: Microeconomics</span><span class="divider">/</span></li><li><a title="Go to: Unit 2.5-2.6: Elasticity" href="../20195/unit-25-26-elasticity-1.html">Unit 2.5-2.6: Elasticity</a><span class="divider">/</span></li><li><span class="active">Unit 2.5: Income elasticity of demand (YED)</span></li></ul>
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<section class="span12" id="main-content">
<h2><img alt="" src="../../../ib/economics/images/micro-economics/income-elasticity-diagramii-1.jpg" style="width: 300px; height: 300px; float: left;">Introduction</h2><p>This lesson focuses on the third type of elasticity in economics - income elasticity of demand or YED. I find that many IB students will confuse this concept with price elasticity of demand. You will need to emphasis to your classes that while a number of products, especially luxury goods and services may be both YED and PED elastic, it is possible for a product to be either YED elastic and PED inelastic or vice versa. This is because one determinate of PED elasticity is the number of available substitute and complimentary products. This is not a factor in determining YED elasticity. </p><p>This page also contains information on inferior goods, products which have an inverse relationship, making them different to other forms of goods and services - which we collectively class 'normal goods'.</p><hr class="hidden"><div class="greenBg"><h3>Enquiry question</h3><p>What is Income elasticity of demand and what determines the YED elasticity of a product or not?</p><p>What are the implications of income elasticity of demand for businesses and the economy as a whole?</p></div><div class="blueBg"><h4><strong><img alt="" src="../../../ib/economics/images/macro-economics-2/download34.jpg" style="width: 250px; height: 378px; float: right;">Teaching notes:</strong></h4><p><strong>Lesson time: </strong>80 minutes</p><p><strong>Learning objectives: </strong></p><p>Explain the concept of income elasticity of demand, understanding that it involves responsiveness of demand (and hence a shifting demand curve) to a change in income.</p><p>Calculate YED using the equation percentage change in quantity demanded / percentage change in income</p><p>An understanding that normal goods have a positive value of YED while inferior goods have a negative value of YED.</p><p>Distinguish, with reference to YED, between necessity (income inelastic) goods and luxury (income elastic) goods.</p><p>Examine the implications for producers and for the economy as a whole, of a relatively low YED for primary products, a relatively higher YED for manufactured products and an even higher YED for services.</p><p><strong>Lesson notes:</strong></p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>1. </strong><strong>Opening activity </strong>- begin the lesson with the introductory exercise. This involves drawing the market for four products on the board, e.g. luxury cars, bread, used cars and public transport.and ask students to determine which is which. This is a question that I often start with and it works well. (10 minutes)</span></p><p><span style="color:#FF0000;"><img alt="" height="197" src="../../../ib/economics/images/general-2/61460_782581111758126_433182998_n.jpg" style="float: left;" width="364"><strong>2.</strong> <strong>Processes </strong>- <strong>technical vocabulary - </strong>the students can learn the vocabulary and the relevant concepts by studying the handout that you will distribute and / or by watching the powerpoint presentation or video included on this page. (10 minutes)</span></p><p><span style="color:#FF0000;"><strong>3. Activity</strong> - contains a short video which explains the concept of YED. After the video you should distribute the handout which contains class notes and a number of practise activities. The last of these is a HL only question, requiring students to calculate the YED for a variety of products, from the information provided. </span></p><p><span style="color:#FF0000;"></span><span style="color:#FF0000;"><strong>4.</strong> <strong>Reinforcement</strong><span style="color:#FF0000;"><strong> </strong>-<strong> </strong></span>complete the activities attached to the handout. </span><span style="color:#FF0000;">I normally allow around 45 minutes for each activity, including the HL activity. 35 minutes for SL students not completing activity 10.</span><span style="color:#FF0000;"><strong> </strong> Activity is the one that I use as a possible link to TOK, encouraging my classes to make the connection between economics and TOK at every opportunity. </span></p><p><span style="color:#FF0000;"></span></p><p><span style="color:#FF0000;"><strong>5. </strong><strong>Activity 11</strong>- a homework exercise, which can also be completed in class. It contains a paper one (section B) type question that I wrote myself, making it suitable for homework because your classes will not be able to find the mark scheme on line. (allow 10 minutes to discuss)</span></p></section></div><div class="pinkBg"><h5> Beginning activity</h5><p>Draw four YED diagrams on the whiteboard - one YED elastic, one YED inelastic, one unitary and one representing an inferior good. Ask your class to match the diagrams to the 4 products that you give them e.g. luxury cars, bread, used cars and public transport.</p></div><div class="greenBg"><h4><img alt="" src="../../../ib/economics/images/micro-economics/income-elasticity-diagramii-1.jpg" style="width: 300px; height: 300px; float: right;"><em>Key terms:</em></h4><p><strong>Income elasticity of demand (YED) </strong>- the responsiveness of demand for a good or service following a change in real income levels.</p><p><strong>YED formulae </strong>- % change in demand for a good or service / % change in consumer income.</p><p><strong>Normal good</strong> - a good or service with a direct relationship between income and demand, i.e a good where demand for the product rises as income rises.</p><p><strong>Inferior good</strong> - a good or service with an inverse relationship between income and demand, i.e a good where demand falls as income rises.</p><p><b>Engels law - </b>the theory which states that as a households income rises the percentage spent on some purchases e.g. food decreases, while the proportion spent on other goods (such as luxury goods) increases.</p></div><div class="blueBg"><h4>YED range of values</h4><p>Goods and services with a YED value > 1 are <u>elastic</u> (i.e a top heavy fraction) as the % change in demand is greater than the initial % change in income.</p><p>Goods and services with a YED value > 0 but < 1 are <u>inelastic</u> (i.e a bottom heavy fraction) as the % change in demand is smaller than the initial % change in income.</p><p>Goods and services with a YED value = 1 have unitary elasticity as the % change in demand is equal to the initial % change in income.</p><p>Goods and services with a YED value < 0 have negative elasticity and are deemed inferior goods and services. Unlike normal goods the relationship between quantity demanded and consumer income is inverse.</p></div><p>The class handout and accompanying activities are available as a class handout at: <a href="../../../media/ib/economics/files/micro-economics/yed-activities.pdf.html" target="_blank" title="Student handouts"><img class="ico" src="../../../thinkib/icons/student-handout.png"> YED class notes</a></p><div class="pinkBg"><h4><img alt="" src="../../../ib/economics/images/micro-economics-2/hand-holding-shopping-bags_23-2147491522-1.jpg" style="float: right; width: 254px; height: 271px;" title="images.google.com">Activity 1</h4><p>Write down again a list of your 10 main expenditures (in a month) and again next to each item write down whether you consider the good or service to be a basic necessity or a luxury item? Now imagine that your income rises by 50%. Next to each assign one of the following labels to each item:</p><p>a. Following my rise in income of 50%, I would increase my consumption of the product by more than 50%.</p><p>b. Following my rise in income of 50%, I would increase my consumption of the product by less than 50%.</p><p>c. Following my rise in income of 50%, I would increase my consumption of the product by about 50%.</p></div><p><strong>Decoding your list</strong></p><section class="tib-hiddenbox"><p><img alt="" src="../../../ib/economics/images/micro-economics-2/iphone-7-ozellikleri-ve-fiyati-4.jpg" style="width: 320px; height: 179px; float: left;" title="image: http://shiftdelete.net/"><span style="color:#FF0000;">Your should have compiled a list of 10 goods and services that they frequently purchase and next to each should have written a, b or c. It will be obvious that the (a) list includes income elastic goods, B inelastic e.t.c.</span></p><p><strong>Why did you make those choices?</strong></p><p><span style="color:#FF0000;">Perhaps your selected items as (a) because they consider them to be of only marginal importance to their lives - luxury items which are nice to have but previously they could live without? Now you are enjoying a higher income, however, they will purchase more of these items. </span></p><p><span style="color:#FF0000;">Now consider the items they selected (b) for. Why was this? Perhaps these items are necessary items for them? Basic necessities which they do not necessarily need more of, once their disposable income rises?</span></p></section><div class="pinkBg"><h4>Activity 2: Video activity</h4><p>Watch the video on YED and then complete the activities that follow:</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/dc7ZQwv-xLQ" width="640"></iframe></p><p>(a) A worker is awarded a 10% pay rise (after taxes have been deducted). In response the consumer cancels their cheap £ 30 a month membership at a sports club and upgraded to the premium membership, which costs £ 40. Calculate the YED for <img alt="" src="../../../ib/economics/images/micro-economics/blank-yed-diagram.jpg" style="width: 320px; height: 320px; float: right;">premiership sports club package?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"> <span style="color:#FF0000;">This would be represented by a YED of % change in demand (33%) / % change in income (10%) = YED of 3.33. </span></span></p></section><p>(b) Describe the YED of this good.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A YED of 3.33 represents an income elastic product. </span></p></section><p>(c) Complete the diagram to the right, by adding the appropriate labels.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A - inelastic YED</span></p><p><span style="color:#FF0000;">B - unitary YED</span></p><p><span style="color:#FF0000;">C - elastic YED</span></p></section><p>(d) Complete the missing summary by filling in the missing words:</p><p>As a general rule basic necessity items are income or YED________, meaning that the resulting % change in quantity demanded is ________ than the initial change in real income. By contrast luxury goods are normally YED ________. This means that the resulting % change in quantity demanded is _________ than the initial change in real income. Other products may be unitary or unit elasticity. This means that the resulting % change in quantity demanded is ______ to the initial change in real income. These goods are neither luxury goods or basic necessities and examples might include second hand cars or medium luxury products.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">inelastic, lower, elastic, greater, equal.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 3</strong></h4><p>1. The following table documents the relationship between sales of new cars in the USA and income levels:</p><p>a. Complete the missing blanks at the bottom of the table - (numbers in brackets indicate negative values).</p><table border="2" cellpadding="0" cellspacing="0"><tbody><tr><td style="text-align: center;"><strong>Year</strong></td><td style="text-align: center;"><strong>Real GDP growth (%)</strong></td><td style="text-align: center;"><strong>Growth in new car sales (%)</strong></td></tr><tr><td style="text-align: center;">August 2006</td><td style="text-align: center;">2.39</td><td style="text-align: center;">1.49</td></tr><tr><td style="text-align: center;">August 2007</td><td style="text-align: center;">1.87</td><td style="text-align: center;">(8.72)</td></tr><tr><td style="text-align: center;">August 2008</td><td style="text-align: center;">(2.77)</td><td style="text-align: center;">(8.11)</td></tr><tr><td style="text-align: center;">August 2009</td><td style="text-align: center;">(0.24)</td><td style="text-align: center;">0.8</td></tr><tr><td style="text-align: center;">August 2010</td><td style="text-align: center;">2.73</td><td style="text-align: center;">(21)</td></tr><tr><td style="text-align: center;">August 2011</td><td style="text-align: center;">1.68</td><td style="text-align: center;">7</td></tr><tr><td style="text-align: center;">August 2012</td><td style="text-align: center;">1.28</td><td style="text-align: center;">20.56</td></tr><tr><td style="text-align: center;">August 2013</td><td style="text-align: center;">2.66</td><td style="text-align: center;">16.28</td></tr><tr><td style="text-align: center;">August 2014</td><td style="text-align: center;">2.49</td><td style="text-align: center;">16.67</td></tr><tr><td style="text-align: center;"><strong>Average for the period</strong></td><td style="text-align: center;"><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>1.34%</strong></span></p></section></td><td style="text-align: center;"><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><strong>2.77%</strong></span></p></section></td></tr></tbody></table><p>b. Based on the above figures calculate the level of YED for the new car sales in the USA?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">2.77 / 1.34 = 2.07 which makes new car sales income elastic.</span></p></section><p>c. Describe the relationship between income levels and new car ownership in the USA?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">With a YED of 2.07, new car sales are highly income elastic but it is interesting to note that the relationship is not instant - there is a time lag between rising income levels in the US economy and an increase in new purchases, suggesting that consumers consider their likely income moving forward before deciding whether to buy a new car or not? </span></p></section><p>d. Provide two reasons why the sale of new cars is income elastic.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">New cars are a luxury item, even in a nation such as the USA which enjoys high disposable incomes. An American family would normally plan to purchase a new car over a period of 12 months or so and will only do so if they have sufficient confidence in their own financial prospects. This is likely to explain why there is a delay between the US economy picking up in 2010 and sales of new cars rising 18 months or so later. As the US economy went into recession in the period 2007 - 2009 sales of new cars fell dramatically as this was an easy expenditure to cut back on.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 4: Inferior goods</strong></h4><p>Watch the following short video and then answer the questions which follow:</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/qFNiYv3Nupw" width="640"></iframe></p></div><div class="pinkBg"><h4><strong>Questions:</strong></h4><p><img alt="" src="../../../ib/economics/images/micro-economics/inferior-good.jpg" style="width: 300px; height: 300px; float: left;">The diagram to the left illustrates an inferior good. This is one that has an inverse relationship between income and demand. As a person's income rises demand for this type of good falls.</p><p>(a) Provide some examples of inferior goods or services.</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Public transport or low cost own brand products.</span></p></section><p>(b) Inferior goods will have a YED lower than _________</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">0</span></p></section><p>(c) Why might public transport be an example of an inferior good?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Following a rise in living standards, for example, a consumer may choose not to use public transport at all and instead drive their car more.</span></p></section></div><div class="pinkBg"><h4><strong>Activity 5</strong></h4><p>Which of the following goods and services do you think are examples of inferior goods in the USA?</p><p>Ramen noodles</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Is an example of an inferior good, perhaps because of its popularity amongst college students?</span></p></section><p>Bread / bread products</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">No bread and bread products are consumed by all income groups although they are highly income inelastic.</span></p></section><p>Cheap microwave pizzas</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">This product is an example of an inferior good. As an individual's disposable income rises they consume higher quality / more expensive pizzas or order take way pizza instead.</span></p></section><p>Oil</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Oil is YED unitary, as a nation's income rises car consumption and industrial output rises.</span></p></section><p>Public transport</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Demand for bus travel, particularly city to city travel rises as income levels fall but there is no correlation between the number of intra-city metro journeys made and income levels - except amongst the super rich (who use private cars) and the very poor who use even cheaper modes of transport.</span></p></section><p>Used cars</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Second hand cars are not inferior goods. As a consumer's income rises many households will give up their used car to buy a brand new one - but this is balanced out by previously low income consumers using their additional income to purchase a second hand car for the first time.</span></p></section><p>Potatoes</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Potatoes are an inferior good with wealthier people enjoying other food products.</span></p></section><p>Unhealthy foods including junk foods</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">These are an example of an inferior good as wealthier people tend to buy more organic and other healthier foods.</span></p></section><p>Supermarket own brand items</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Generic food products are also inferior goods, though often similar in quality to branded products.</span></p></section><p>Samsung smart phones</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">These are clearly not inferior goods but have a much lower YED than you might think. This is because Samsung smart phones are considered inferior to their main competitor, Apple but of course superior to some other cheap mobile phones.</span></p></section></div><div class="pinkBg"><h4><strong><span lang="EN-GB" style="font-size:
12.0pt;line-height:115%;font-family:"Times New Roman",serif;color:windowtext"></span>Activity 6: TOK activity on inferior goods and services<span lang="EN-GB" style="font-size:
12.0pt;line-height:115%;font-family:"Times New Roman",serif;color:windowtext"></span></strong></h4><p>a. Is a quality product always more expensive to manufacture or buy than a mediocre product?</p></div><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Not necessarily, certainly some luxury products are made with higher levels of workmanship and superior components but in other products this is not necessarily the case. For instance, supermarket own brands are cheaper because of zero advertising, brand promotion and sponsorship costs but the supermarkets actually purchase these goods from the same companies that produce the high priced branded goods.</span></p><p><span style="color:#FF0000;">Similarly, Apple products sell at a premium on the 'build-quality' myth. Yet the products hardware is designed and built in China by the very same designers and workforce that make Apple’s rivals laptops and smartphones.</span></p><p><span style="color:#FF0000;">When Aldi set up a discount store in the UK some affluent people, in the know, used to take in Harrods bags to hide the Aldi merchandise from their snobby friends. Yet the Aldi products kept winning top awards for quality at low prices.</span></p></section><div class="pinkBg">b. Given that all giffen goods are inferior goods, does this mean that inferior goods are also giffen goods?</div><section class="tib-hiddenbox"><p><span style="color:#FF0000;">The short answer to this question is no. Specifically an inferior good is inferior to its substitutes and has a YED < 0. In other words as income levels fall demand for the product rises. By contrast a giffen good is a special form of inferior good because in addition to having a negative income elasticity a giffen good will also have a price elasticity of demand lower than zero.</span></p></section><div class="pinkBg"><h4><strong>Activity 7</strong></h4><p>Cigarettes have a negative YED in the USA and Europe. Does this mean that cigarettes are actually inferior goods? What are they inferior to?</p></div><section class="tib-hiddenbox"><p><strong>Hint:</strong></p><p><span style="color:#FF0000;"></span><span style="color:#FF0000;"><img alt="" src="../../../ib/economics/images/micro-economics-2/images-(2).jpg" style="width: 320px; height: 214px; float: right;">According to economic theory, because cigarettes have a negative relationship between demand and income levels, they are regarded as an inferior goods.</span></p><p><span style="color:#FF0000;">The underlying assumption for this is that cigarettes are a good associated with poverty. For one, poor individuals may resort to cigarette smoking as a respite from the stresses they face. On the other hand, inferior goods typically have “substitutes” that are of higher quality. We can argue that the alternatives to smoking - healthier ways of getting a buzz, or cigars - can be afforded by people of higher incomes, thus designating cigarettes as an inferior good. <span style="color:#FF0000;">Those on higher incomes might also prefer to switch their consumption from tobacco based cigarettes to e-cigarettes / vaping, which while cheaper to consume (per unit) require a larger initial outlay - again reinforcing the view that cigarettes are an inferior good.</span></span></p><p><span style="color:#FF0000;">Of course, an alternative theory is that there is also a strong positive correlation between individuals with higher income and education levels and healthier lifestyles. Therefore, it may well be that the correlation between income and demand for cigarettes is instead an effect rather than a cause.</span></p><p><span style="color:#FF0000;"></span></p></section><div class="pinkBg"><h4><strong>Activity 8: Sales activity when incomes and consumer confidence rises</strong></h4><p>Watch the following short video and then decide which products appear to be YED elastic goods, which appear to be YED inelastic or even inferior goods?</p><p style="text-align: center;"><iframe allowfullscreen="" frameborder="0" height="360" src="//www.youtube.com/embed/_g2eiQ2ql_s" width="640"></iframe></p></div><section class="tib-hiddenbox"><p><strong><span style="color:#FF0000;"><em>Based on the news reel, the goods and services which appeared to be showing the highest increase in sales were identified as:</em></span></strong></p><p><span style="color:#FF0000;">Elastic - restaurant sales, building materials, vacations, petrol sales</span></p><p><span style="color:#FF0000;">Inelastic - food and beverage, clothing and retail.</span></p></section><div class="pinkBg"><h4 id="header-10"><img alt="" src="../../../ib/economics/images/micro-economics/engel-curve-example.jpg" style="width: 320px; height: 320px; float: right;">Activity 9: Engel curves</h4><p>Engels theory states when income for a low-income households rises, demand for some products e.g rice increases. This is because it is considered a normal or even luxury good by households on low incomes. However, the same good is considered a necessity good by households on middle incomes while wealthy households consider the food item an inferior good. This means that as the family’s income rises further their demand for the staple will fall. The diagram to the right illustrates an Engel curve. </p><p>Complete the following sentence by filling in the missing blanks.</p><p>In area A the YED of rice would be _________, in area B _________ and in area C the YED would be _______________.</p></div><section class="tib-hiddenbox"><p><span style="color:#FF0000;">A - Normal inelastic </span></p><p><span style="color:#FF0000;">B - zero elasticity (neither inferior or normal)</span></p><p><span style="color:#FF0000;">C - negative (inferior good)</span></p></section><div class="pinkBg"><h4><strong>Activity 10: Calculating YED </strong></h4><p>(a) Sarah receives a pay rise and her income rises from $ 40,000 to $ 50,000. As a result of this she increases her expenditure on holidays from $ 2,000 per year to $ 2,800. She also purchased a more expensive gym membership which <img alt="" src="../../../ib/economics/images/general-2/20160701_135126.jpg" style="float: right; width: 343px; height: 180px;" title="Forca, Turkey">now costs $ 100 per month rather the previous $ 80 per month. By contrast her food expenditures rise only from $ 500 per month to $ 520. She also calculates that her monthly expenditures on heating her house did not change. Following her wage rise she spends slightly less on public transport, reducing her monthly expenditure from $ 150 per month to just $ 100.</p><p>Calculate her YED for</p><p>i. Holidays</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Holidays - 1.6</span></p></section><p>ii. Gym membership</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><span style="color:#FF0000;">Gym membership - 1</span></span></p></section><p>iii. Food</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Food - 0.16</span></p></section><p>iv. Heating for her house</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Heating for her house - 0</span></p></section><p>v. Public transport</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">Public transport - (1.32)</span></p></section><p>vi. Explain why her expenditure on public transport fell following her pay rise?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><span style="color:#FF0000;">Public transport is an inferior good. As her income rises she uses public transport less often and instead uses more expensive substitutes such as taxis or her own car.</span></span></p></section></div><div class="pinkBg"><p><strong>Question (b)</strong></p><p>Brian loses his teaching position where he earned £2,500 a month and was instead forced to live of unemployment insurance, where he received just £1,000 a month. As a result he is forced to cancel his planned skiing holiday and instead <img alt="" src="../../../ib/economics/images/macro-economics-2/379417.jpg" style="width: 320px; height: 174px; float: left;">stay at home, looking for a new position. He also decides against purchasing a new car, which would have cost him £10,000 and instead purchases a cheap second hand model for just £2,000. He also reduces his weekly food bill at the supermarket by identifying certain supermarket brand products, which he can purchase rather than the branded items he purchased previously. In total his food bill fell from £400 a month to £250. As a final cost cutting measure he quits his gym membership and instead takes up jogging and decides to turn down the heating at his house, reducing his monthly gas bill from £120 each month to £90. His spending on rent, internet and electricity remain unchanged. </p><p><em>Calculate his YED for:</em></p><p>i. Car purchases</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">80 / 60 = 1.33</span></p></section><p>ii. Food</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><span style="color:#FF0000;">38 / 60 = 0.63</span></span></p></section><p>iii. Gym membership</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"><span style="color:#FF0000;">100 / 60 = 1.67</span></span></p></section>iv. Heating his home<section class="tib-hiddenbox"><p><span style="color:#FF0000;">25 / 60 = 0.42</span></p></section><p>v. Rent, internet, electricity expenses</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">0 / 60 = 0</span></p></section><p>vi. Explain why he is unable or unwilling to reduce his monthly expenditure on rent, internet and electricity?</p><section class="tib-hiddenbox"><p><span style="color:#FF0000;">There are two reasons that might explain why the YED of those products is zero. One factor is that Brian is likely to be in the middle of a rental agreement for his house, internet package e.t.c. and so these are fixed costs, which he cannot reduce in the short run. In the long run, if he remains unemployed then we can expect him to reduce his purchases of those products as well.</span></p></section></div><div class="greenBg"><h4><strong>Activity 11: Link to the assessment </strong></h4><p>Income elasticity of demand can be found in paper one and three of the IB economics exams. Paper three (HL only) would contain YED calculations, similar in style to the previous activity, number 10. A typical paper one question might require candidates to reflect on the uses and implications of YED theory. An example from the HL syllabus, which could also be provided as a homework exercise, is included below:</p><p><strong>Part (a)</strong></p><p>Explain using appropriate diagrams why the income elasticity for manufactured goods and services tends to be higher than the YED for primary products. <em>[10 marks]</em></p><section class="tib-hiddenbox"><div><p><strong><span style="color:#FF0000;"></span></strong><span style="color:#FF0000;"><img alt="" height="300" src="../../../ib/economics/images/micro-economics/yed-diagram-ii.jpg" style="float: right;" width="272"></span><strong><span style="color:#FF0000;">Command term: Explain</span></strong></p><p><span style="color:#FF0000;"><em>Explain means to provide reasons why primary products tend have a lower income elasticity of demand than manufactured goods?</em></span></p><p><span style="color:#FF0000;">Key terms to define: income elasticity of demand, primary products and manufactured goods. </span></p><p><span style="color:#FF0000;">Responses should include an explanation that many manufactured goods are luxury goods, which see a significant change in quantity demanded when income levels change. Primary goods are generally basic necessities which households consume regardless of their income.</span></p><p><span style="color:#FF0000;">The response also needs to note that while the above statement is a general rule, there are exceptions to this rule, e.g. goods with low income elasticity of demand include tobacco products and fuel. Similarly, examples of primary goods with high YED include luxury commodities such as gold or cavier.</span></p><p><span style="color:#FF0000;">Relevant diagrams should also be included.</span></p></div></section><p><strong>Part (b)</strong></p><p>“The income elasticity of demand for primary products tends to be lower than that for manufactured products and services.” Using real life examples, evaluate the implications of this for producers and for the economy as a whole. <em>[15 marks]</em></p><section class="tib-hiddenbox"><p><span style="color:#FF0000;"></span></p><p><strong><span style="color:#FF0000;">Command term: Evaluate </span></strong><span style="color:#FF0000;"><em>requires IB students to determine the significance of YED elasticity on the producers of primary products, in comparison to firms producing manufactured goods and services. </em></span></p><p><span style="color:#FF0000;">Key terms to define: <strong>YED</strong></span></p><p>Relevant real life examples include: industries and nations that suffered significantly during the financial crisis of 2007 - 2010 as well as the restraints felt by a number of LEDCs, whose primary exports come from agricultural and primary goods with low YED. This makes it more difficult to take advantage of periods of world economic growth and could be compared with LEDCs e.g. China and Vietnam that export manufactured goods with higher YED. </p><p><span style="color:#FF0000;"><img alt="" src="../../../ib/economics/images/development-2/images-(1)(2).jpg" style="width: 320px; height: 212px; float: left;"></span></p><p><span style="color:#FF0000;">The significance of this for producers is that during periods of recession or economic stagnation producers of luxury products will see a significant fall in their sales. </span><span style="color:#FF0000;"></span><span style="color:#FF0000;">Examples might include the financial crisis of 2007 - 2010, when a number of global industries in the financial services and luxury car market ran into difficulties.</span></p><p><span style="color:#FF0000;">Firms producing basic commodities are unlikely to see a significant fall in their revenues.</span> <span style="color:#FF0000;">Some products may even see a small rise in demand for their products as consumers switch away from luxury substitutes. For example sales of coal / gas may increase if lower incomes prevent households from investing in solar or other forms of energy generation.</span></p><p><span style="color:#FF0000;">However, during periods of economic growth the fortunes of the two businesses are reversed. Given that over a period of time the world economy grows, producers of manufactured products and services are in a better position to take advantage of the opportunities that this offers.</span></p><p><span style="color:#FF0000;">The better responses may also link their response to the difficulties faced by many LEDCs, whose main export revenues come from the sale of primary goods.</span></p><p><span style="color:#FF0000;">Responses should also include diagrams to illustrate goods with high / low YED elasticity. </span></p></section></div><script>document.querySelectorAll('.tib-teacher-only').forEach(e => e.remove());</script>
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