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When income increases the money spent on necessaries of life may not increase in the same proportion, This means
- a)income elasticity of demand is zero
- b)income elasticity of demand is one
- c)income elasticity of demand is greater than one
- d)income elasticity of demand is less than one
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
When income increases the money spent on necessaries of life may not i...
Explanation:
Income elasticity of demand is the measure of the responsiveness of demand for a good or service to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
When income increases, the money spent on necessaries of life may not increase in the same proportion. This means that the income elasticity of demand is less than one. This can be explained by the following reasons:
1. Saturation point: When income increases, the demand for certain goods may reach a saturation point, beyond which the demand does not increase even if income increases further. For example, the demand for food may not increase in proportion to the increase in income, as the basic need for food is already met.
2. Substitution effect: When income increases, consumers may switch to substitute goods that are cheaper or provide greater satisfaction. For example, if the price of a luxury car increases, consumers may choose to buy a cheaper car or a different mode of transportation like a bike or public transport.
3. Saving effect: When income increases, consumers may choose to save a portion of their income for future use. This reduces the amount of money available for spending on goods and services.
Conclusion:
In conclusion, when income increases, the money spent on necessaries of life may not increase in the same proportion, leading to a lower income elasticity of demand. This can be attributed to the saturation point, substitution effect, and saving effect.
Income elasticity of demand is the measure of the responsiveness of demand for a good or service to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
When income increases, the money spent on necessaries of life may not increase in the same proportion. This means that the income elasticity of demand is less than one. This can be explained by the following reasons:
1. Saturation point: When income increases, the demand for certain goods may reach a saturation point, beyond which the demand does not increase even if income increases further. For example, the demand for food may not increase in proportion to the increase in income, as the basic need for food is already met.
2. Substitution effect: When income increases, consumers may switch to substitute goods that are cheaper or provide greater satisfaction. For example, if the price of a luxury car increases, consumers may choose to buy a cheaper car or a different mode of transportation like a bike or public transport.
3. Saving effect: When income increases, consumers may choose to save a portion of their income for future use. This reduces the amount of money available for spending on goods and services.
Conclusion:
In conclusion, when income increases, the money spent on necessaries of life may not increase in the same proportion, leading to a lower income elasticity of demand. This can be attributed to the saturation point, substitution effect, and saving effect.
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Community Answer
When income increases the money spent on necessaries of life may not i...
When income increase monesy spend on necessaries of life is not increase because necessaries of life is remain same i.e. wether income increase the or decrease consumer will not demand necessaries goods as much as conumer need like salt, medicine are the necessitites goods here demand is here demand is less changable i.e. demand is less then one
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When income increases the money spent on necessaries of life may not increase in the same proportion, This meansa)income elasticity of demand is zerob)income elasticity of demand is onec)income elasticity of demand is greater than oned)income elasticity of demand is less than oneCorrect answer is option 'D'. Can you explain this answer?
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When income increases the money spent on necessaries of life may not increase in the same proportion, This meansa)income elasticity of demand is zerob)income elasticity of demand is onec)income elasticity of demand is greater than oned)income elasticity of demand is less than oneCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about When income increases the money spent on necessaries of life may not increase in the same proportion, This meansa)income elasticity of demand is zerob)income elasticity of demand is onec)income elasticity of demand is greater than oned)income elasticity of demand is less than oneCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for When income increases the money spent on necessaries of life may not increase in the same proportion, This meansa)income elasticity of demand is zerob)income elasticity of demand is onec)income elasticity of demand is greater than oned)income elasticity of demand is less than oneCorrect answer is option 'D'. Can you explain this answer?.
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