Question

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will: *

A) tend to become more price elastic.

B) tend to become more price inelastic.

C) tend to become closer to unit elastic.

D) tend toward being perfectly elastic.

Answer 1

The answer is B

As the percentage of consumer's income accounted for a particular good decreases, then the demand of the good will tend to be more price inelastice because if a good constitute a small proportion of consumer's income then the demand of the good will not be much affected by the change in income.

Price elasticity of demand is the degree to which the demand for something changes as its price changes.

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price