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 is a measure of how sensitive the quantity demanded of a good or service is to changes in income. It helps to determine whether a good is a normal good or an inferior good.
If the income elasticity of demand is positive, it indicates that the good is a normal good. A positive income elasticity means that as income increases, the quantity demanded of the good also increases, indicating that it is a normal good.
If the income elasticity of demand is negative, it indicates that the good is an inferior good. A negative income elasticity means that as income increases, the quantity demanded of the good decreases, indicating that it is an inferior good.
Therefore, income elasticity of demand captures the responsiveness of quantity demanded to changes in income.
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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