Question
Consider the following statement with reference to ‘Income Elasticity of Demand’:
Which of the statements given above is/are correct?
- It measures the responsiveness of demand for a particular good to changes in consumer income.
- Using this concept, it is possible to tell if a particular good represents a necessity or a luxury.
Which of the statements given above is/are correct?
Answer: Option A
Answer: (a)
Income elasticity of demand is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income. It measures the responsiveness of the quantity demanded a good or service to a change in income.
If the income elasticity of demand of a commodity is less than 1 that means that with a change in income, demand is not changing much, which means, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
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Answer: (a)
Income elasticity of demand is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income. It measures the responsiveness of the quantity demanded a good or service to a change in income.
If the income elasticity of demand of a commodity is less than 1 that means that with a change in income, demand is not changing much, which means, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
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