Demand is income elastic if

• A. an increase in income will not affect the quantity demanded.
• B. a small percentage increase in income will result in a large percentage increase in quantity demanded.
• C. the good in question has close substitutes.
• D. a large percentage increase in income will result in a small percentage increase in quantity demanded.

Answer: (B)

Income elasticity of demand measures how responsive the quantity demanded is to changes in income. When a small percentage increase in income leads to a large percentage increase in quantity demanded, the elasticity is greater than one, so demand is income elastic. This is exactly what the statement describes, hence the correct choice signals a strong income response, typical of luxury or higher-end goods. In contrast, zero elasticity would mean income changes don’t affect demand, and elasticity between zero and one would mean demand is income inelastic. Substitutes relate to price effects, not income responsiveness.