Income Elasticity of Demand
Definition
Measures the responsiveness of quantity demanded to a change in consumer income. Formula: YED = % Change in Quantity Demanded / % Change in Income. Positive YED indicates a normal good; negative YED indicates an inferior good.
Example
"If income rises by 10% and demand for AC units rises by 15%, YED = +1.5 (luxury normal good). If demand for coarse rice falls as income rises, it is an inferior good with negative YED."