If you spend a large portion of your income on a good,
A) supply of that good would be price elastic.
B) demand for that good is more elastic than if you spent a smaller portion of your income on the good.
C) supply of that good is price inelastic.
D) demand for that good is less elastic than if you spent a smaller portion of your income on the good.
E) the good must be able to be produced at a constant (or gently rising) opportunity cost.

Question

Quizplus · Accepted Answer

The portion of income spent on a good affects the elasticity of demand, not supply. If you spend a large portion of your income on a good, your demand for that good is more sensitive to price changes (more elastic) because it represents a significant part of your budget. This means you're more likely to reduce consumption if the price increases, compared to a good that takes up a smaller portion of your income.

If You Spend a Large Portion of Your Income on a Good