Problem: A recent research found that the income elasticity of demand for your firm's product is equal to 0.80. Furthermore, a recent news article in an important business newspaper estimates that income is expected to decline by 4 percent this year. Explain your answer and provide examples.
Required:
a. Determine your decision as a manager regarding the size of your product inventories?
b. If the news report is true, what would happen to your sales?
c. What would happen to answers a. and b. if instead of a decrease in income of 3 percent there is an increase in income of 6 percent?