Final answer:
Understanding the income elasticity of demand for pineapple tarts helps in formulating a business strategy. If the tarts are a luxury good, the seller should target higher-income consumers, whereas if they are a normal good with inelastic demand, accessibility should be prioritized.
Step-by-step explanation:
The income elasticity of demand for pineapple tarts can be described considering that an increase in household income from $1,500 to $2,100 led to an increased purchase of the tarts by consumers. This scenario indicates that pineapple tarts are a normal good; demand for them increases as income rises. If the percentage increase in the quantity demanded is greater than the percentage increase in income, the income elasticity of demand for the pineapple tarts is greater than one, and the tarts are considered a luxury good. Conversely, if the increase in quantity demanded is less than the income increase, the income elasticity is less than one, which still classifies the tarts as a normal good, albeit not a luxury.
For the seller, understanding the income elasticity helps in developing a sound business strategy. If the elasticity indicates that pineapple tarts are a luxury (elastic demand), the seller could focus on marketing and product placement strategies that target higher-income consumers and emphasize the premium nature of the product. On the other hand, if the elasticity is inelastic, the seller might benefit from strategies aimed at ensuring wide accessibility and affordability of the product across various income groups