Home › CA Foundation › Business Economics › Elasticity of Demand › If the proportion of a consumer's income spent o…
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_
Related questions
Using the Point method on a straight-line demand curve AB, elasticity at point P is given Under the Total Outlay method, demand is said to be unitary elastic when:Which of the following is NOT one of the four methods of measuring elasticity of demand liCross elasticity of demand (Ec) measures:Income elasticity of demand (Ey) is defined as:If proportionate change in demand equals proportionate change in price, the demand is:If a small change in price produces a much larger proportionate change in demand, the demaIf the price of a good changes and demand does not change at all, the price elasticity of