What does a negative YED indicate about a good?

A negative income elasticity of demand (YED) indicates that as consumer income increases, the quantity demanded for the good decreases. This characteristic is defining for inferior goods.

Inferior goods are those that consumers purchase less of as their income rises, often because they can now afford to buy higher-quality alternatives. When people have lower incomes, they tend to buy more of these goods due to their lower price point or limited alternatives.

In contrast, luxury goods typically have positive YED, meaning that demand increases as income increases. Normal goods also have positive YED, indicating that demand increases with an increase in income, but at a slower rate than luxury goods. Necessities, while often normal goods, are still tied to positive income elasticity as demand does not decrease significantly even with a rise in income.

This understanding of YED is essential in economic analysis, particularly in predicting consumer behavior in response to changes in income levels.