Calculating Income Elasticity of Demand Values: Easy Economics 3 Step Process

The video tutorial explains how to calculate the income elasticity of demand (YED) using a three-step process. It begins with an introduction to the concept and formula of YED, followed by a detailed explanation of proportionate change in quantity and income. The tutorial then outlines a simple three-step process for calculating YED, which involves determining changes in quantity and income, calculating the top and bottom of the formula, and deriving the elasticity value. Two examples are provided: one with simple numbers and another with more complex numbers, to illustrate the process. The video concludes with a summary of the key points.

What does the income elasticity of demand (YED) measure?

• The change in price due to a change in demand

• The change in demand due to a change in income

• The change in supply due to a change in income

• The change in income due to a change in demand

Which of the following is the first step in the three-step process to calculate YED?

• Calculate the elasticity value

• Calculate the changes in quantity demanded and income

• Divide the change in income by the initial income

• Multiply the change in quantity demanded by the initial quantity

In the three-step process, what is done in the second step?

• Calculate the changes in quantity demanded and income

• Determine the elasticity value

• Compute the top and bottom of the formula

• Interpret the elasticity value

In the simple example, what was the initial quantity demanded?

• 1900 units

• 2000 units

• 500 units

• 450 units

What was the calculated YED value in the simple example?

• 1.5

• 1.0

• 0.05

• 0.5

In the complex example, what was the change in quantity demanded?

• 0.5 million units

• 1 million units

• 2 million units

• 1.5 million units

What was the calculated YED value in the complex example?

• -1.35

• 0.5

• 1.35

• -0.5

What does a negative YED value indicate about a good?

• The good is normal

• The good is inferior

• The good is a necessity

• The good is a luxury

What is the significance of a YED value greater than zero but less than one?

• The good is a necessity

• The good is a luxury

• The good is a substitute

• The good is inferior

What is the main takeaway from the conclusion of the unit?

• The process is complex and requires advanced calculations

• The process is simple when broken down into steps

• The process is only applicable to luxury goods

• The process is irrelevant for economic analysis