Question

The difference between price elasticity of demand and income elasticity of demand is that

A. income elasticity of demand examines how an​ individual's income changes when prices change and the price elasticity of demand examines how quantity demand changes when price changes.

B. income elasticity measures the responsiveness of income to changes in supply while price elasticity of demand measures the responsiveness of demand to a change in price.

C. income elasticity refers to a horizontal shift of the demand curve while price elasticity of demand refers to a movement along the demand curve.

D. income elasticity refers to the movement along the demand curve while price elasticity refers to a vertical shift of the demand curve.

Answer 1

Income elasticity of demand refers to responsiveness of quantity demanded to changes in income levels. Since, demand curve is drawn by taking into consideration the price level only, keeping all other factors constant, income elasticity refers to a horizontal shift of the demand curve.

On the other hand, price elasticity of demand measures the responsiveness of quantity demanded to changes in price level. This will refer to the movement on the same demand curve. This is because change in price will cause the movement on the same demand curve.

Thus, the correct answer is C. Income elasticity refers to a horizontal shift and price elasticity refers to movement on the same demand curve.