Definition
- Planning for changing incomes
- Planning for changing incomes uses the income elasticity of demand, because how far a good's demand curve shifts when incomes change depends on it.
Example
Can you think of an example of planning for changing incomes?
A supermarket expects real incomes to fall, so it stocks more of its value range, which has a negative income elasticity, and fewer premium ready meals.
Test yourself
Can you name the four decisions an elasticity estimate helps to make?