Question

coefficients of income elasticity give insights into how a recession impacts the sale of different consumer. explain.

Answer 1

If the coefficient of income elasticity is positive, it is indicative of the fact that increase in the income of the consumer is likely to increase the sale of the product. Similarly, decline in the income of the consumer will reduce the sales. These are normal goods. For inferior goods, the coefficient is negative which means decline in income of the consumer will increase the sales of inferior goods.

When there is a recession in the economy, income of the consumer is decreased. Due to this reason, sales of goods and services with negative coefficient of income elasticity (inferior goods) would increase while sales of goods and services with positive coefficient of income elasticity (normal goods) would decrease.