Question

Which of the following statements illustrates income elasticity of demand​?

A. A rise in​ Annie's income by 5 percent decreases supply of canned fruits by 6 percent.
B. A salary cut and no other changes has resulted in Mary buying less fast food.
C. Poor economic conditions are resulting in higher unemployment and lower aggregate demand.
D. A 2 percent fall in the price of peanuts increases​ Ralph's demand for almonds by 5 percent.

Answer 1

The correct answer is option B.

Step-by-step explanation:

The concept of income elasticity of demand shows the change in demand due to change in the income of the consumer.

Here, only the second statement is showing income elasticity of demand. A decrease in Mary's salary or income has caused a reduction in her demand for food. This implies that a change in her income is causing a change in her demand for a good. So this clearly illustrates the income elasticity of demand.