Income elasticity indicates

A. how sensitive quantity demanded is to changes in price.

B. whether a good is a normal good or an inferior good.

C. whether two goods are substitutes or complements.

D. all of the above.

Income elasticity indicates B. whether a good is a normal good or an inferior good.

Income elasticity shows the relationship between the demand for a product and the income of consumers. The change in income will cause an increase or decrease in the quantity demanded of a product. Income elasticity is said to be positive when the product is a normal good. A normal good occurs when an increase in income level will also cause an increase in the quantity demanded. The quantity demanded and the income is directly proportional. Income elasticity is said to be negative when the product is an inferior good. It is the opposite of a normal good where an increase in income will cause a decrease in the quantity demanded. The quantity demanded and the income is inversely proportional.