Multiple Choice
If the income elasticity of demand for peanut butter is -3, peanut butter is classified as which type of good?
123
views
4. Elasticity
Income Elasticity of Demand
Multiple Choice
Which of the following best describes the concept of income elasticity of demand?
A
It measures how the quantity demanded of a good responds to changes in its price.
B
It measures the relationship between the price of one good and the demand for another good.
C
It measures how the quantity supplied of a good responds to changes in consumer income.
D
It measures how the quantity demanded of a good responds to changes in consumer income.
Verified step by step guidance1
Step 1: Understand the concept of elasticity in economics, which measures the responsiveness of one variable to changes in another variable.
Step 2: Recall that income elasticity of demand specifically measures how the quantity demanded of a good changes in response to changes in consumer income.
Step 3: Recognize that income elasticity of demand is calculated using the formula: \(\text{Income Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}\).
Step 4: Differentiate income elasticity of demand from other elasticities, such as price elasticity of demand (which relates quantity demanded to price changes) and cross-price elasticity (which relates demand of one good to the price change of another good).
Step 5: Conclude that the correct description of income elasticity of demand is that it measures how the quantity demanded of a good responds to changes in consumer income.
Related Videos
Related Practice
