AP Microeconomics

Answer - C - The correct equation for the income elasticity of demand is Y_e = percentage change in quantity demanded divided by the percentage change in income.

Key Takeaway: The income elasticity of demand is used to help producers of a good know how much the demand for a particular good will change in response to the income of consumers. To determine this, producers divide the percentage of the change in quantity demanded by the percentage change in consumer income. With normal goods, the income elasticity will always be positive. It will generally be negative for inferior goods.