Final answer:
The correct statement is that the greater the percentage of the budget spent on a good, the greater its inelasticity of demand, indicating that the demand is less responsive or inelastic to price changes.
Step-by-step explanation:
The question revolves around the concept of price elasticity of demand, which measures how sensitive the quantity demanded of a good is to a change in its price. When a large percentage of a consumer's budget is spent on a good, a change in the price of that good is likely to affect the consumer more significantly. In such cases, consumers are often less able to find alternatives or reduce their consumption significantly; hence, the quantity demanded is less responsive to a change in price. This results in a lower elasticity of demand, which means the demand is inelastic.
The correct statement in the context of this question is: The greater the percentage of the budget spent on a good, the greater its inelasticity of demand. The reasoning behind this is, that when the good constitutes a larger portion of the budget, consumers may not reduce their demand much even if the price increases, signifying that quantity demanded does not change much in response to price changes - a characteristic of inelastic demand.