1. Ripped From the Headlines
Kaitlin Smith
20 September 2016

2. Overview “Rising Incomes Juice Consumer Spending”
Wall Street Journal, 13 September 2016
For the middle class, income increased 5.2% between 2014 and 2015
WSJ expects that most of the people earning more income will spend more money

3. Income Elasticity of Demand
EDI = % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑖𝑛𝑐𝑜𝑚𝑒 = Δ𝑄𝐷 + 5.2%
“Middle-class oriented retailers” sell normal goods
Increased spending on normal goods indicates that Δ𝑄𝐷 is positive
0 < EDI ≤ 1 so 0 < Δ𝑄𝐷 ≤ 5.2%

4. Outward Shift in Demand Curve
Price
Greater demand at all prices D1 D2
Quantity

5. How can retailers use this information?
Expect overall sales to increase up to 5.2%
Look at income elasticities of specific products to forecast quantity demanded