Answer to Question #272667 in Microeconomics for ash

Question

Suppose that you expect a ceteris paribus decrease in average incomes of 10% this

year compared to last year. How many aircrafts do you estimate that your company will

sell this year? How will it impact total revenues?

Answer 1

Solution:

The company will sell fewer aircraft when the average incomes decrease by 10% compared to last year. This is because the consumers will not be able to afford them due to the decrease in their disposable income.

Aircraft is a normal luxury good with elastic demand, and therefore, when consumers' income decrease while other things like prices remain constant, will lead to a drop in their demand.

The total revenue will also decrease massively due to a drop in aircraft sales made by the company.