Your private equity firm owns Brumana Pugliese (BP), a leadi…
Your private equity firm owns Brumana Pugliese (BP), a leading scooter manufacturer in Brazil. Analysis shows the income elasticity of demand for scooters in Brazil is εi,q=−1.5, and the price elasticity is εp,q=−2.8. Macroeconomic forecasts predict a 20% income increase for the lowest income bracket in Brazil over the next year. a) While rising incomes are generally positive, what specific economic fact regarding BP’s scooters could cause concern for the company’s future sales in Brazil, given the expected income growth? b) Based on your answer in (a), what is likely to happen to the market demand and equilibrium price of BP scooters in Brazil? Explain briefly.