Can someone please explain this?

Question

Use an elasticity concept to explain each of the following

observations.

a. During economic boom times, the number of new personal

care businesses, such as gyms aand tanning salons, is proportionately greater than the number of other new business such as grocery stores.

Answer 1

As you know that during economic boom times, incomes of people are very high. So People spend more on recreational or luxuries activities because these are more elastic in nature rather than the daily house holds goods which are available at grocery stores because they are less elastic in nature.

So when income of people increase they have more trend to spend on more elastic goods & activites so that in econmice boom period gyms are more than grocery stores.

I hope this will give answer of your question.

Answer 2

Income elasticity of demand measures the degree to which consumption increases with an increase in income.  Personal care businesses, because they are not necessary to live, have high income elasticity, while food is necessary for survival, so it has a lower income elasticity of demand.  Because of this, when incomes increases, as it does in an economic boom, there will be more new demand for personal care businesses than for groceries.