Home › CMA Foundation › businesseconomics › Elasticity of Demand › Income elasticity of demand (Ey) is defined as:
Income elasticity of demand (Ey) is defined as:
AProportionate change in demand divided by proportionate change in income
BChange in demand divided by change in price
CSum of price and income elasticities
DChange in income divided by change in demand
Answer & Solution
Correct answer: A. Proportionate change in demand divided by proportionate change in income
1. Income elasticity of demand: Ey = (proportionate ΔQ) / (proportionate ΔY).
2. Equivalently Ey = (dQ/Q) / (dY/Y) = (dQ/dY) × (Y/Q).
3. It measures how demand responds to changes in consumer income.
_Source: ICMAI BoS CMA Foundation Paper 4 (Business Economics & Management), Module 1 §1.3 (Theory of Demand) + §Elasticity of Demand, p. 33-46_
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: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 Price elasticity of demand (Ep) is defined as: