Exploring Income Elasticity of Demand: An Interactive Journey

• Business
• Upper Secondary (Key Stage 4)
• BTEC

Exploring Income Elasticity of Demand: An Interactive Journey

Learning Objective

At the end of the lesson, you will understand income elasticity of demand, calculate it, and interpret its implications in real-world scenarios.

What do you already know about how income changes affect demand?

Introduction to Income Elasticity

Income elasticity of demand measures how demand changes with income. It shows if a good is a necessity, luxury, or inferior.

Formula and Calculation

Income Elasticity = (% Change in Quantity Demanded) / (% Change in Income)

Types of Goods

Luxury goods: Elasticity > 1. Necessities: Elasticity between 0 and 1. Inferior goods: Elasticity < 0.

Interactive Chart

Examine a chart depicting changes in demand for luxury, necessity, and inferior goods with varying incomes.

Case Study: Real-World Application

Analyse how a rise in income affects demand for cars and public transport in an economy.

Interactive Calculation Exercise

Calculate income elasticity for a set of goods using provided data. Determine their categories.

Summary and Reflection

Review key concepts: definition, calculation, types of goods, and applications. Reflect on learning.

What is the formula for income elasticity?

1. (% Change in Demand) * (% Change in Income)
2. (% Change in Quantity Demanded) / (% Change in Income)
3. (% Change in Quantity) - (% Change in Income)
4. (% Change in Income) / (% Change in Quantity)

Which type of good has elasticity > 1?

1. Luxury goods
2. Inferior goods
3. Necessities
4. All goods

What does income elasticity of demand measure?

1. Supply changes with income
2. Consumer preferences over time
3. Demand changes with income
4. Price changes with demand

Write down 3 things you learned in this lesson.

Write down 2 things you want to know more about.

Ask 1 question about something you haven't quite understood yet.