An economic question?

the income elasticity of demand for a firms product is estimated to be .75 a recent report in wall street journal says that national income is expected to decline by 3 percent this year
a) what should you do with your stock of inventories

b) what do you expect to happen to your sales

economics is fun

Answer:
the formula is change in quantity divided by change in income

Q / I = E

Q/ 3% = .75

Q = 2.25%

So for b) Sales are going to fall by 2.25%

Thus in a) you would let your stock of inventories slightly decline, or maybe let them decline by 2.25%

c) Q/5% = .75

Q = 3.75%
Sales will increase by 3.75% and you will increase your inventories accordingly

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