Question

Income elasticity of demand measures how:

a. the quantity demanded changes as consumer income changes.
b. consumer purchasing power is affected by a change in the price of a good.
c. the price of a good is affected when there is a change in consumer income.
d. many units of a good a consumer can buy given a certain income level.

Answer 1

Income elasticity of demand measures the change in quantity demanded resulting from a change in consumer income, with normal goods showing a positive elasticity and inferior goods a negative elasticity. Option a) is correct.

Step-by-step explanation:

The income elasticity of demand measures how the quantity demanded changes as consumer income changes. When consumer income increases, the quantity demanded for normal goods generally rises, which translates into a positive income elasticity of demand. Conversely, for inferior goods, an increase in income may lead to a decrease in quantity demanded, showing a negative income elasticity of demand. The income elasticity of demand can be formally defined as the percentage change in quantity demanded divided by the percentage change in income.