What is the difference between income elasticity and price elasticity?
An example of an AI chatbot conversation about income and price elasticity differences.
What is the difference between income elasticity and price elasticity?
Income elasticity measures how demand changes with income changes, while price elasticity measures demand changes with price changes.
Can you give me an example of each?
Sure! For income elasticity, if a person's income increases and they buy more luxury goods, that's positive income elasticity. For price elasticity, if the price of a product drops and demand increases, that's elastic demand.
How do these concepts affect businesses?
Businesses use these concepts to set prices and forecast sales. Understanding elasticity helps them optimize pricing strategies.
What factors influence income and price elasticity?
Factors include the availability of substitutes, necessity vs luxury status, and consumer preferences.
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