Where the percentage change in demand is proportionately less than the percentage change in income

• A. Income elastic demand
• B. Income inelastic demand
• C. Price elastic demand
• D. Price elasticity of demand

Answer: (B)

This is about income elasticity of demand, which measures how much quantity demanded responds to a change in income. When income rises and demand increases, but by a smaller percentage than the income, the elasticity is between 0 and 1. This is called income inelastic demand. For example, if income goes up by 8% but demand only goes up by 3%, the elasticity is 0.375, indicating the demand is not very responsive to income changes. This often occurs with necessities, where you don’t drastically boost purchases as your income grows. In contrast, price changes affect price elasticity of demand, not income, so the given situation isn’t about responsiveness to price.