Income elasticity

The knowledge of income elasticity is a visit source of information in business decision making.The income elasticity is useful in following ways:

1. Determine the effect of changes in economic activity :The knowledge of income elasticity is useful in determining the effect of change in business activity on various industries.The firms whose demand functions have high income elasticity will have good growth opportunities in an expanding economy.So,in their plans,the forecast of aggregate economic activity will be important.
2. Marketing activity :The income elasticity can play an important role in marketing activities of a firm.If capital or household income is found to be an important determinant of the demand for a particular product,this can affect the location and nature of sales outlets.It can also have impact on advertising and promotional activities.In case of goods having high income elasticity.It is better to make significant promotional effort due to the potential for substantially increased future business as the income increase.
3. Design marketing strategy :The income elasticity is useful in designing marketing strategy or targeting marketing efforts.For example, if a firm is specialised in expensive ladies cloths,rich ladies are its prime customers as the rich people are the prime customers or luxury goods.Hence,the firm should concentrate its marketing efforts in the media such as television that reached to the wealthy segment of the population.For good such as washing soaps which are widely used by average people,the firm can select ratio promotional activities.