Paper 2 · June 2025 · Price Elasticity of Demand
A survey found food overall has an income elasticity of demand of +0.20: a 10 percent rise in income raises the quantity of food demanded by only about 2 percent. As household income grows over time, this low income elasticity means that spending on food as a proportion of total household expenditure will
Afall only in years when the price of food happens to fall at the same time
Brise, since all spending categories grow at exactly the same rate as household income does
Cstay unchanged, since food is a basic necessity that nobody can ever cut back on
Dfall, since demand for food grows more slowly than income and total spending
Explanation
With food's income elasticity at only +0.20, quantity demanded of food grows at a fraction of the rate income grows, so spending on food takes up a shrinking share of the household budget even as income and total spending rise, the pattern known as Engel's law.
Derived from ZIMSEC A-level Economics Paper 2 (Data Response), June 2025, Q1