Correct Answer: The responsiveness of demand to changes in consumer income.

Solution : The correct answer is (c) The responsiveness of demand to changes in consumer income.

Income elasticity of demand measures the sensitivity or responsiveness of the quantity demanded of a good or service to changes in consumer income. It helps businesses understand how changes in consumer income levels can affect the demand for their products or services.

By analyzing income elasticity of demand, businesses can determine whether their goods or services are normal goods, inferior goods, or luxury goods.

If the income elasticity of demand is positive, it indicates that the good is a normal good, meaning that as consumer income increases, the demand for the good also increases.

If the income elasticity of demand is negative, it indicates that the good is an inferior good, meaning that as consumer income increases, the demand for the good decreases. Inferior goods are often replaced with higher-quality substitutes as income rises.

If the income elasticity of demand is greater than 1, it suggests that the good is a luxury good, meaning that the demand for the good increases at a proportionately higher rate than income.

Understanding the income elasticity of demand helps businesses make informed decisions about product development, pricing strategies, marketing efforts, and target markets based on changes in consumer income levels.