The responsiveness of demand to a change in income

The responsiveness of demand to a change in income

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

Answer: (A)

The concept being tested is how much demand responds to changes in income. This is captured by income elasticity of demand, which measures the percentage change in quantity demanded divided by the percentage change in income. It shows whether a good is normal (positive elasticity) or inferior (negative elasticity), and whether it’s a luxury (elasticity greater than 1) or a necessity (elasticity between 0 and 1). Because the question specifically asks about responsiveness to income, this measure is the correct description. The other terms relate to different ideas: price inelastic demand refers to responsiveness to price changes, price elasticity of demand to how quantity changes with price, and discretionary expenditure is simply a spending category, not a measure of income-driven responsiveness.

The concept being tested is how much demand responds to changes in income. This is captured by income elasticity of demand, which measures the percentage change in quantity demanded divided by the percentage change in income. It shows whether a good is normal (positive elasticity) or inferior (negative elasticity), and whether it’s a luxury (elasticity greater than 1) or a necessity (elasticity between 0 and 1). Because the question specifically asks about responsiveness to income, this measure is the correct description.

The other terms relate to different ideas: price inelastic demand refers to responsiveness to price changes, price elasticity of demand to how quantity changes with price, and discretionary expenditure is simply a spending category, not a measure of income-driven responsiveness.