Question

Suppose we want to examine which sectors would be affected more severely during a recession or expansion in the economy. Which type of elasticity is useful? Explain why.

Answer 1

Income elasticity, it defines how the demand for the goods and services will change with an increase or decrease in the income of the people. at the time of recession the income will fall, thereby the good with a higher income elasticity will fall, these goods are considered as luxury goods and the goods with low income elasticity will have there demand increases they are considered as inferior goods

So, good with less than 1 income elasticity will see a higher demand at the time of recession and good with more than 1 elasticity will see a great fall.