Multiple Choice
Which of the following best describes what is measured by the income elasticity of demand?
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4. Elasticity
Income Elasticity of Demand
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An increase in income will ______ for a normal good.
A
increase the quantity demanded
B
have no effect on the quantity demanded
C
decrease the quantity demanded
D
cause the good to become inferior
Verified step by step guidance1
Understand the definition of a normal good: A normal good is one for which demand increases as consumer income increases.
Recall the relationship between income and quantity demanded for a normal good: When income rises, consumers typically buy more of the normal good, so the quantity demanded increases.
Analyze the options given: 'increase the quantity demanded' aligns with the definition of a normal good, while 'have no effect,' 'decrease the quantity demanded,' and 'cause the good to become inferior' contradict the concept.
Conclude that an increase in income leads to an increase in the quantity demanded for a normal good, because consumers have more purchasing power and prefer to buy more of these goods.
Therefore, the correct completion of the sentence is: 'increase the quantity demanded.'
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