Question : The concept of income elasticity of demand is important for businesses to understand:
Option 1: The impact of inflation on consumer purchasing power.
Option 2: The relationship between advertising expenditure and sales.
Option 3: The responsiveness of demand to changes in consumer income.
Option 4: The optimal pricing strategy for a given income level.
Correct Answer: The responsiveness of demand to changes in consumer income.
Solution : The correct answer is (c) The responsiveness of demand to changes in consumer income.
Income elasticity of demand measures how sensitive the quantity demanded of a good or service is to changes in consumer income. It helps businesses understand how their products or services will be affected by changes in income levels of their target market. By analyzing income elasticity, businesses can assess whether their products are normal goods (income elastic) or inferior goods (income inelastic) and make informed decisions about pricing, marketing strategies, and product development. It provides insights into how changes in consumer income can impact demand and helps businesses anticipate and respond to shifts in consumer purchasing power.
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