Final answer:
Operating leverage is the term that measures how sensitive net operating income is to a change in sales dollars, which differs from income elasticity of demand.
Step-by-step explanation:
The measure of how sensitive net operating income is to a given percentage change in sales dollars is known as operating leverage. Operating leverage is not the same as income elasticity of demand, which is the percentage change in quantity demanded divided by the percentage change in income. Operating leverage is a business term that refers to the extent to which a company can increase its operating income by increasing revenue. A business with high operating leverage will see a rapid growth in income from a relatively small increase in sales, because fixed costs remain constant and any increase in sales provides additional revenue that goes straight to the bottom line after covering these fixed costs.
Understanding operating leverage is critical in making decisions about pricing, marketing, and business expansion, as firms with high operating leverage need to be more sensitive to changes in sales and market conditions.