1. The income elasticity of demand for your firm’s product is estimated to be 0.75. A recent report in The Wall Street Journal says that national income is expected to decline by 3 percent this year.
i. What should you do with your stock of inventories?
ii. What do you expect to happen to your sales?
iii. How would you answer parts a and b if you expected a 5 percent increase in income instead of a decrease?