Is price elasticity of demand a more useful concept than income elasticity of demand for a business that is trying to increase its sales revenue?

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pohnpei397 eNotes educator| Certified Educator

Price elasticity of demand is definitely more useful to a business that is trying to raise its sale revenues than income elasticity of demand. Businesses can change their prices, but they cannot change their customers’ incomes.  In addition, businesses can change their prices in real time whereas customers’ incomes do not generally change from day to day.

Price elasticity of demand refers to how much the quantity demanded of a product changes as price changes.  If demand is elastic, a price increase leads to decreased revenues. If demand is inelastic, a price increase leads to increased revenues.  Clearly, then, this information would be very valuable to a business that wanted to increase its sales revenues.  It could determine its price elasticity of demand and change its prices accordingly.

Income elasticity of demand refers to how much the quantity demanded of a product changes as consumers’ incomes change.  It tells a business how much more of its products customers would buy if they got richer.  This is not as helpful for a business.  It cannot change its customers’ incomes to get them to buy more, so it is not that helpful for the business to know what the income elasticity of demand is.