Question: 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.
Q1. What should you do with your stock of inventories?
Q2. What do you expect to happen to your sales?
Q3. How would you answer parts (a) and (b) if you expected a 5 percent increase in income instead of a decrease?