IB Economics Higher Level (HL) Practice Exam 2026 – The All-in-One Guide to Mastering Your Exam Success!

The concept of elasticity in economics examines how one variable responds to changes in another variable. When discussing how demand for a good changes in relation to changes in income, the appropriate measure is income elasticity of demand. This specific elasticity reflects the percentage change in quantity demanded resulting from a percentage change in consumer income.

Income elasticity can indicate whether a good is a normal good or an inferior good. A positive income elasticity suggests that as income increases, the demand for the good also increases, characterizing it as a normal good. Conversely, a negative income elasticity implies that demand decreases as income rises, indicating an inferior good. This makes income elasticity an essential tool for understanding consumer behavior and market dynamics in response to income fluctuations.

Other types of elasticity focus on different relationships; for instance, price elasticity of demand measures how demand changes as the price of the good itself changes, and cross price elasticity determines how the demand for one good changes in response to the price change of another good. Therefore, the option that correctly addresses the relationship between income changes and demand response is indeed income elasticity.