Answer to Question #119637 in Microeconomics for mona

Question

1} it has been estimated that the income elasticity of demand for the people's car is 1.6 among the middle class families and -0.2 for top- income earning families. explain what these mean and comment upon their business significant for Indian car manufacturers.

Answer 1

For middle income earners ,the income elasticity means that the percentage change in quantity demanded is greater than the percentage change in income of consumers.ie as the income rises ,the quantity demanded for vechiles also increase.For top income families , increase in income reduces the quantity of cars demanded.

For indian car manufacturers ,this means that their target market is the middle class families.