What does income elasticity of demand measure?

Income elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in consumer income. Specifically, it quantifies the percentage change in the quantity demanded in response to a one-percent change in income. If the income elasticity is greater than one, the good is considered a luxury good; if it is less than one, it is considered a necessity. This concept is crucial for understanding consumer behavior and demand patterns, especially in relation to changes in economic conditions.

The other choices do not accurately represent the concept of income elasticity. One option refers to the change in quantity demanded concerning price changes, which relates to price elasticity of demand rather than income. Another option discusses the relationship between the prices of two goods, which pertains more to cross-price elasticity of demand. Lastly, the total income of consumers does not directly relate to how demand for specific goods changes with income variations, which is what income elasticity of demand focuses on.