How would Starbucks use Income elasticities to decide to raise or lower its prices?

List an example and or source *prefered scholarly*

Income Elasticities The sensitivity of demand to income is measured by their income elasticity. The income elasticity is defined as the percentage change in the demand for a good, given a percentage change in income (I). Income elasticities can be calculated using the following formula. n1 = [AQ/(Q1 + Q2)/2] + [AI/(I1 + 12)/2] (4.9) The income elasticity is positive for normal goods and negative for inferior goods. The income elasticity of a firm's product has important implications. Firms producing products with high income elasticities are more affected by cyclical fluctuations; they tend to grow more rapidly in expanding economies but contract more sharply in depressed economies. Managers must anticipate these fluctuations in managing cash flows and hiring decisions. Demands for products with small income elasticities are more stable over economic cycles. Studies indicate that goods like domestic servants, medical care, education for children, and restaurant meals tend to have relatively large income elasticities, whereas goods such as most food products, gasoline, oil, and liquor have relatively small (in absolute value) income elasticities. Income elasticities also can influence location decisions. For instance, PTC has a relatively high-income elasticity (above 1.6). This elasticity was one of the factors that motivated the founders to locate their theater in a community with a high per capita income. They anticipated that they would have fewer customers if they located in a less affluent area. MANAGERIAL APPLICATIONS Estimates of Income Elasticities Economists have estimated the income elasticities for various products. Below are a few of these estimates: Page 132 Flour Margarine Milk Meat Dentist services =-0.36 =-0.20 = 0.07 = 0.35 = 1.41 Restaurant consumption= 1.48 According to these estimates, flour and margarine are inferior goods. People spend less on these goods as their incomes rise. The other goods are normal goods (expenditures on the products rise with income). Dentist services and restaurant consumption are particularly sensitive to income changes. Source: E. Mansfield and G. Yohe (2004), Microeconomics (W. W. Norton: New York), 135.