📈 Economics

1Using income elasticity of demand explain the reasons for the increase in profits during the recession for businesses like Aldi, Lidl etc?

1 answers
Michael CombaOxford graduate and experienced tutor.17.5k students helped

Income elasticity of demand refers to the responsiveness of a demand for a product to a change in income. Sometimes demand for some products rise when incomes fall, these are known as “inferior” goods, generally goods that have more “luxurious” substitutes, eg buses and cars. Discount supermarkets are an inferior good. During a recession incomes fall and demand for inferior products therefore rise. Consequently, as income falls demand for supermarkets like Aldi and Lidl rise.