You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly - 0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter

Question

Pamela Burnett

Business

5 March, 21:42

You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly - 0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter

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Answers (1)

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Emilia Boyer · Answer 1

The purchase should stay the same or even increase its number.

Explanation:

To begin with, due to the fact that the income elasticity of peanut butter is exactly - 0,7 then that good is inferior and because of that when the income drops by 15 percent next year then the consumer will still be buying the product but in a more frequent way due to the fact that if the income decreases then the demand of that product that tend to be inferior will be available for everyone. That is why, as a manager you should continue to buy peanut butter.