Use of income elasticity of demand, Microeconomics

Use of Income elasticity of demand:

Income elasticity of demand on the other hand, has the following uses

(i) Income elasticity of demand shows how the pattern of consumer demand changes in response to econmic growth or decline. If an economy is growing, consumer demand for normal goods increase while the demand for inferior goods falls.

(ii) Income elasticity of demand is also important for businessmen when planning investments. Outputs of inferior goods should not be expanded during times that incomes are rising while those of normal goods could be expanded furing times that incomes are rising.

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