Income concentration and market demand

We analyze the effects of income concentration and income dispersion on market demand and its elasticity. We show that, following an increase in income concentration towards the middle (measured by variations in mean preserving spread), the increase in demand faced by firms which serve at the margin middle income consumers, is associated with an increase in price elasticity-accordingly, the positive effects of the size of the market becoming wider are amplified by a higher degree of competition. Our results hold for a large number of possible income distributions.