the income elasticity of demand for a firms product is estimated to be .75 a recent report in wall street journal says that national income is expected to decline by 3 percent this year
a) what should you do with your stock of inventories
b) what do you expect to happen to your sales
economics is fun
2007-07-09 16:18:37 · 1 answers · asked by jake p 2 in Social Science ➔ Economics
oh, and
c) how would you answer parts a and b if you expected a 5% increase in income instead of decrease
2007-07-09 16:20:03 · update #1
the formula is change in quantity divided by change in income
Q / I = E
Q/ 3% = .75
Q = 2.25%
So for b) Sales are going to fall by 2.25%
Thus in a) you would let your stock of inventories slightly decline, or maybe let them decline by 2.25%
c) Q/5% = .75
Q = 3.75%
Sales will increase by 3.75% and you will increase your inventories accordingly
2007-07-09 17:37:22 · answer #1 · answered by JuanB 7 · 0⤊ 0⤋