Answer to Question #312222 in Economics of Enterprise for Nompumelelo

Question

Discuss in details the two types of income elasticity and substantiate the type of income elasticity most applicable during this time

Answer 1

Positive income elasticity of demand is elasticity whereby an increase in a consumer's income increases the need for a product. The decrease in a consumer's income decreases the demand for a product.

Negative income elasticity of demand

This is where the increase in consumer's income does not increase the demand for a product but decreases its need.

The most substantial elasticity is the positive income elasticity of demand because consumers tend to increase their purchasing power when their income is high. They can buy more of a particular product because their income is more and therefore, they can afford a specific product in plenty. Similarly, when the income decreases, the consumer's purchasing power will decrease because they cannot afford a particular product in plenty due to a decrease in revenue.