Question : Income elasticity of demand measures the responsiveness of quantity demanded to changes in:
Option 1: Price.
Option 2: Income.
Option 3: Population.
Option 4: Advertising expenditure.
Correct Answer: Income.
Solution : The correct answer is (b) Income.
Income elasticity of demand measures how the quantity demanded of a good or service responds to changes in income. It measures the percentage change in quantity demanded divided by the percentage change in income.
When income increases, the demand for certain goods may increase as well, indicating a positive income elasticity of demand. On the other hand, for some goods, an increase in income may lead to a decrease in demand, indicating a negative income elasticity of demand. The magnitude of the income elasticity of demand can provide insights into the income sensitivity of a particular good or service.
Question : Which of the following is a characteristic of demand elasticity?
Option 1: It measures the responsiveness of quantity demanded to changes in price.
Option 2: It measures the responsiveness of quantity supplied to changes in price.
Option 3: It measures the responsiveness of demand to changes in income.
Option 4: It measures the responsiveness of demand to changes in the cost of production.
Question : Cross elasticity of demand measures the responsiveness of quantity demanded to changes in:
Option 1: Price of a substitute good.
Option 2: Price of a complementary good.
Option 3: Income.
Option 4: Both a) and b).
Question : Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the:
Option 1: Price of a complementary good
Option 2: Price of a substitute good
Option 3: Income of consumers
Option 4: Production cost of the good
Question : The percentage change in _______ divided by the percentage change in _______ is the income elasticity of demand.
Option 1: The quantity demanded; income
Option 2: Income; the price
Option 3: Income; the quantity demanded.
Option 4: The price; income
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