Which term describes the degree to which demand responds to changes in income?

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

Answer: (D)

Income elasticity of demand measures how much the quantity demanded changes as income changes. This directly captures the responsiveness of demand to shifts in income, which is exactly what the question asks. When income rises, demand for normal goods increases (positive income elasticity), while demand for inferior goods may fall (negative). This concept is distinct from price-related measures like price elasticity of demand, which look at how demand responds to price changes rather than income. It’s also different from a description of spending behavior (discretionary expenditure) and from a specific case of responsiveness to price (price inelastic demand). So the term that best describes how demand responds to income changes is income elasticity of demand.