Final answer:
The income elasticity of demand measures the degree to which consumers respond to a change in their earnings by buying more or less of a particular good.
Step-by-step explanation:
The income elasticity of demand measures the degree to which consumers respond to a change in their earnings by buying more or less of a particular good. It is calculated by dividing the percentage change in quantity demanded by the percentage change in income. For example, if the income elasticity of demand for a luxury car is 2, it means that a 1% increase in income would result in a 2% increase in the quantity demanded of the luxury car.