The income elasticity of demand refers to A. the change in income required for quantity demanded to change by 1%. B. the substitution of one good for another as income changes. C. a change in income following a change in quantity demanded. D. the percentage change in quantity demanded resulting from a 1 percent increase in income.

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04-10-2019
Business

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The income elasticity of demand refers to A. the change in income required for quantity demanded to change by 1%. B. the substitution of one good for another as income changes. C. a change in income following a change in quantity demanded. D. the percentage change in quantity demanded resulting from a 1 percent increase in income.

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Answer: Option D

Explanation: In simple words, income elasticity of demand refers to the change in demand that occurs due to the change in the income of the consumers. Higher elasticity means that if the income of the consumer rises the demand for that specific commodity by the consumer will most likely change.

It is computed by dividing the percentage change in quantity demanded with the percentage change in income.

Hence from the above we can conclude that the correct option is D.