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If the proportion of a consumer's income spent on a good increases as income increases, the income elasticity of demand for that good is:
AGreater than one
BEqual to one
CPositive but less than one
DNegative
Answer & Solution
Correct answer: A. Greater than one
1. If the income share stays the same as income rises, income elasticity equals one.
2. If the share rises with income, demand grows faster than income.
3. Demand growing faster than income means elasticity exceeds one.
4. So the income elasticity is greater than one.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.29_
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