Which of the following best describes the concept of income elasticity of demand in relation to the difference in weekly earnings between a college graduate and someone with some college education?

• A. It shows the change in supply of labor as more individuals attain a college degree.
• B. It measures how the quantity demanded of a good changes as the income of college graduates increases compared to those with some college.
• C. It calculates the absolute difference in weekly earnings between college graduates and those with some college.
• D. It determines the price elasticity of demand for higher education based on weekly earnings.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of income elasticity of demand. It measures the responsiveness of the quantity demanded of a good or service to a change in consumer income, holding other factors constant.
2. Step 2: Recognize that income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income, expressed as: \(\text{Income Elasticity of Demand} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}\).
3. Step 3: Apply this concept to the context of weekly earnings differences between college graduates and those with some college education. The focus is on how the demand for a good or service changes as the income of these groups changes.
4. Step 4: Differentiate income elasticity of demand from other concepts such as supply changes, absolute income differences, or price elasticity of demand, which relate to different economic relationships.
5. Step 5: Conclude that the correct interpretation involves measuring how the quantity demanded of a good changes as the income of college graduates increases relative to those with some college education, rather than measuring supply changes or absolute income differences.