As income increases, consumption
A) increases at a slower rate.
B) increases faster.
C) decreases at a slower rate.
D) decreases faster.

Question

Quizplus · Accepted Answer

This observation is known as the income elasticity of demand. As income increases, the demand for most goods and services increases as well, but at a slower rate. This is because as income increases, consumers tend to devote a smaller percentage of their income to basic needs like food and housing, and instead spend more on discretionary items like vacations, entertainment, and luxury goods.

As Income Increases, Consumption