Income elasticity of demand (YED) looks at how the demand for a product changes when people's income changes. Knowing what affects YED can help us understand how shoppers behave and how different products react to economic changes. Here are some important points to remember:

1. Type of Good

• Normal Goods: These are products that people buy more of when their income goes up. For example, clothes and meals at restaurants fall into this group. When people have more money, they tend to spend more on these nicer items.
• Inferior Goods: These are the opposite. Demand for these goods drops when income increases. For example, instant noodles and second-hand clothes are considered inferior goods because people might buy better quality items when they can afford it.

2. Necessity vs. Luxury

• Necessity Goods: Items like basic foods or healthcare don’t change much in demand when income changes. These things are needed, so even if people earn more, they still buy about the same amount.
• Luxury Goods: Things like fancy handbags or expensive cars see a big increase in demand when incomes rise. When people have more money, they are more likely to buy these non-essential items.

3. Consumer Preferences

• What people like to buy can change as their income changes. For example, if people become more health-conscious, they might buy more organic food when they have more money.

4. Market Context

• Bigger economic factors, trends, and changes in shopping habits can also matter. For instance, during hard economic times, even goods that usually sell well might see less demand because people are trying to save money.

In summary, many factors affect income elasticity, from the type of good itself to wider economic conditions. Understanding these factors helps us predict how demand might change when incomes go up or down.