To Explain:
The usefulness of the concepts of
Concept Introduction:
The degree of responsiveness of the quantity demanded in response to the change in the price of the product.
Income Elasticity of Demand:
The degree of responsiveness of the quantity demanded in response to the change in the income level of the consumers.
Explanation of Solution
The concept of price
The income elasticity of demand helps in classifying goods into categories such as normal goods (when income elasticity is positive) and inferior goods (when income elasticity is negative). Based on the value of income elasticity, normal goods can be again classified as luxury goods and necessities. These classifications are important for any business decisions. Income elasticities are also used to know about the stages of the business cycle and to
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