Which of the following best describes the concept of income elasticity of demand?

• A. It measures how the quantity demanded of a good responds to changes in its price.
• B. It measures the relationship between the price of one good and the demand for another good.
• C. It measures how the quantity supplied of a good responds to changes in consumer income.
• D. It measures how the quantity demanded of a good responds to changes in consumer income.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of elasticity in economics, which measures the responsiveness of one variable to changes in another variable.
2. Step 2: Recall that income elasticity of demand specifically measures how the quantity demanded of a good changes in response to changes in consumer income.
3. Step 3: Recognize that income elasticity of demand is calculated using the formula: \(\text{Income Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}\).
4. Step 4: Differentiate income elasticity of demand from other elasticities, such as price elasticity of demand (which relates quantity demanded to price changes) and cross-price elasticity (which relates demand of one good to the price change of another good).
5. Step 5: Conclude that the correct description of income elasticity of demand is that it measures how the quantity demanded of a good responds to changes in consumer income.