Which of the following best describes what is measured by the income elasticity of demand?

• A. The responsiveness of the quantity supplied of a good to changes in its price
• B. The responsiveness of the quantity demanded of a good to changes in consumer income
• C. The difference in income levels between women and men
• D. The change in demand for a good when the price of a related good changes

Answer: (B)

Verified step by step guidance

1. Understand that the income elasticity of demand measures how the quantity demanded of a good responds to changes in consumer income.
2. Recall the formula for income elasticity of demand: \(\text{Income Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}\).
3. Recognize that this concept focuses on demand (not supply) and relates specifically to changes in income, not changes in price or prices of related goods.
4. Eliminate options that refer to supply responsiveness, income differences between groups, or changes in demand due to prices of related goods, as these do not describe income elasticity of demand.
5. Conclude that the best description is the one stating the responsiveness of the quantity demanded of a good to changes in consumer income.