Studies show that the income elasticity of demand for wine is approximately five.What does this mean?
A) A one percent decrease in the price of wine leads to a five percent increase in wine consumption.
B) A one percent increase in income leads to a five percent increase in wine consumption.
C) A five percent increase in income leads to a one percent increase in wine consumption.
D) Wine is a relatively elastic good.

Question

Quizplus · Accepted Answer

Income elasticity of demand measures the responsiveness of demand to changes in income. A positive income elasticity of demand for wine (which is true according to the statement) means that wine is a normal good. An income elasticity of demand of 5 means that a 1% increase in income leads to a 5% increase in wine consumption, and a 1% decrease in income leads to a 5% decrease in wine consumption.

Studies Show That the Income Elasticity of Demand for Wine