When the consumer spends less than 3% of his income on a good, demand will be
A) elastic.
B) unit-elastic.
C) inelastic.
D) elastic, unit-elastic or inelastic depending upon supply.

Question

Quizplus · Accepted Answer

When the consumer spends less than 3% of his income on a good, it means that the good is a small part of the consumer's budget, and therefore, the consumer is less sensitive to changes in its price. This suggests that demand for the good is likely to be inelastic.

When the Consumer Spends Less Than 3% of His Income