Mr. Raees Ahamd bought 50 litres of petrol when his monthly income was Rs.25000. Now his monthly income has risen to Rs.50,000 and he purchases 100 litres of petrol. His income elasticity of demand for petrol is

1
100%
Less than 1
More than 1

The correct answer is: C. Less than 1.

Income elasticity of demand is a measure of how much the demand for a good or service changes in response to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.

In this case, Mr. Raees Ahamd’s income increased by 100% (from Rs.25,000 to Rs.50,000), but his demand for petrol only increased by 50% (from 50 litres to 100 litres). This means that his income elasticity of demand for petrol is less than 1.

A value of income elasticity of demand less than 1 indicates that the good is a normal good, meaning that demand for the good increases as income increases, but not by as much as income increases.

In other words, Mr. Raees Ahamd is willing to spend more money on petrol as his income increases, but he is not willing to spend a large proportion of his income on petrol.

If Mr. Raees Ahamd’s income elasticity of demand for petrol was equal to 1, this would mean that he would spend the same proportion of his income on petrol regardless of his income.

If Mr. Raees Ahamd’s income elasticity of demand for petrol was greater than 1, this would mean that he would spend a larger proportion of his income on petrol as his income increases.

In this case, Mr. Raees Ahamd would be considered to be a “luxury goods consumer”.