The percentage change in demand for a product is proportionately greater than the percentage change in income

The percentage change in demand for a product is proportionately greater than the percentage change in income

• A. Income inelastic demand
• B. Price elasticity of demand
• C. Price elastic demand
• D. Income elastic demand

Answer: (D)

Income elasticity of demand measures how much quantity demanded responds to changes in income. If the percentage change in demand is proportionately greater than the percentage change in income, the elasticity is greater than 1, so demand is income-elastic. This describes goods that are highly responsive to income changes, often called luxury goods. For reference, price elasticity looks at how demand changes with price, not income, and income inelastic demand means the change in demand is less than the change in income (elasticity between 0 and 1). A positive income-elastic result indicates a normal good, while a negative result would indicate an inferior good. For example, if income rises by 5% and demand rises by 12%, YED is 2.4, showing high income responsiveness.

Income elasticity of demand measures how much quantity demanded responds to changes in income. If the percentage change in demand is proportionately greater than the percentage change in income, the elasticity is greater than 1, so demand is income-elastic. This describes goods that are highly responsive to income changes, often called luxury goods. For reference, price elasticity looks at how demand changes with price, not income, and income inelastic demand means the change in demand is less than the change in income (elasticity between 0 and 1). A positive income-elastic result indicates a normal good, while a negative result would indicate an inferior good. For example, if income rises by 5% and demand rises by 12%, YED is 2.4, showing high income responsiveness.