Hi guys, could you please help me with this question;
What reason would firms wish to have knowledge in regards to the income elasticity of demand for its products???
Is it because it allows them to see what happens to their total revenue as price changes?????
Since this is not my area of expertise, I searched Google under the key words "income elasticity products" to get these possible sources:
http://www.tutor2u.net/economics/content/topics/elasticity/income_elasticity.htm
http://stats.oecd.org/glossary/detail.asp?ID=3233
http://www.investopedia.com/university/economics/economics4.asp
http://66.102.7.104/search?q=cache:8FJrxFShD_cJ:www.howardcc.edu/social_science/micropdf/3.jb.pdf+income+elasticity+products&hl=en&gl=us&ct=clnk&cd=8&client=safari
http://66.102.7.104/search?q=cache:VEteZZjlGVYJ:www.lancs.ac.uk/staff/ecagrs/What%2520is%2520demand%2520elasticity.doc+income+elasticity+products&hl=en&gl=us&ct=clnk&cd=10&client=safari
I hope this helps. Thanks for asking.
Yes, you are correct. Firms would want to know the income elasticity of demand for their products in order to understand how changes in income affect the demand for their products. Income elasticity of demand measures the percentage change in quantity demanded in response to a percentage change in income.
By knowing the income elasticity of demand for their products, firms can assess the sensitivity of demand to changes in income. This information can help them make important business decisions, such as pricing strategies, production planning, and marketing strategies.
For example, if a firm's product has a high income elasticity of demand (greater than 1), it means that the demand for the product is highly responsive to changes in income. In this case, the firm can anticipate that as income rises, the demand for their product will increase, and vice versa. This knowledge can guide the firm's pricing decisions and marketing efforts targeted towards different income segments of the population.
On the other hand, if a firm's product has a low income elasticity of demand (less than 1), it means that the demand for the product is not very sensitive to changes in income. In this case, the firm may need to focus on other factors, such as price changes or product differentiation, to drive demand for their product.
To find sources that provide more information about income elasticity of demand for products, you can try searching online using keywords such as "income elasticity of demand," "products," and "economics." The links you provided seem to be a good starting point for understanding this concept.