When the consumer spends less than 1% 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 a consumer spends less than 1% of their income on a good, it means that the good is not a significant portion of their budget. Therefore, even if the price of the good changes, it is unlikely to impact their consumption behavior. This leads to a relatively consistent level of demand regardless of price, making it inelastic. The other options are unlikely as the low percentage of income spent on the good suggests that price changes are unlikely to significantly impact demand, making it unlikely to be elastic or unit-elastic. The answer is not dependent on supply, so option D is also unlikely.

When the Consumer Spends Less Than 1% of His Income