Is demand in your automobile sector elastic or inelastic? Explain in your own words what the...

Is demand in your automobile sector elastic or inelastic? Explain in your own words what the price elasticity for Toyota means and use the principles of price sensitivity to support your choice.

Solutions

Expert Solution

Price elasticity of demand refers to the responsiveness of quantity demanded to price. Its the percentage change in quantity demanded divided by the percentage change in price.

Demand in automobile sector is elastic. For example, lets look at the price elasticity of demand for Toyota cars. Price elasticity of demand for Toyota denotes how much Quantity demanded of Toyota will change as a result of the change in price of Toyota.

We have already stated that Toyota has an elastic demand. Demand is elastic if change in quantity demanded is greater than the change in price .

Significant reserach was done by McDonald and Bordey in this field. They estimated that, the average elasticity of demand for Toyota was 1 .8 . This means that, demand for Toyota is price sensitive.When price of Toyota changes by a certain percentage, there will be a more than percentage change in the quantity demanded of Toyota. Elasticity is greaterd to a number of factors . For example, the existence of substitute brands like Ford and Lexus.We already know that, higher the number of substitutes, higher the price elasticity of Similarly high proportion of income is spent on a car. Higher the proportion of income spent, higher the price elasticity.

This can be further explained with the help of the following diagram.

In the diagram, price is measured on the Y axis and quantity demanded is measured on the Y axis.When price increases from P1 to P2 , quantity demanded declines from Q1 to Q2. However, decline in quantity due the price is higher than the Increase in price.

Rahul Sunny answered 6 months ago

Next > < Previous

Related Solutions

Why does a toothbrush have an inelastic demand and an automobile have an elastic demand? Explain...

Why does a toothbrush have an inelastic demand and an automobile have an elastic demand? Explain the underlying economic intuition.

• Is demand for illegal drugs elastic, inelastic, highly elastic, highly inelastic,perfectly elastic, or perfectly inelastic?...

• Is demand for illegal drugs elastic, inelastic, highly elastic, highly inelastic,perfectly elastic, or perfectly inelastic? • What would the shape of that demand curve be (flatter or steeper)? • Prior to completing the Written assignment, you probably have ideas about how we can reduce illegal drug usage. Should we work more on reducing supply or reducing demand? • Why do you think that strategy (supply-side or demand-side) is best?

Is short-run demand for alcohol elastic or inelastic? Explain. Is long-run demand for this elastic or...

Is short-run demand for alcohol elastic or inelastic? Explain. Is long-run demand for this elastic or inelastic? Explain.

2. Elastic, inelastic, and unit-elastic demand

2. Elastic, inelastic, and unit-elastic demand The following graph shows the demand for a good For each region on the graph given in the following table, use the midpoint method to identify whether the demand for this good is elastic, (approximately) unit elastic, or inelastic. True or False: The value of the price elasticity of demand is not equal to the slope of the demand curve.

Define elastic and inelastic demand

• Is the demand curve for your product relatively elastic, inelastic, or unitary elastic? Demonstrate for...

• Is the demand curve for your product relatively elastic, inelastic, or unitary elastic? Demonstrate for your company's product, by how much the quantity demanded will change if you pass on a 10% increase in cost. In other words, show your calculation of the percentage change in the quantity demanded given a 10% change in your price. You must provide calculations showing the percentage change in quantity demanded. • Given your company's and the price elasticity of demand and the...

For each of the following, identify where demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic:

For each of the following, identify where demand is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic: (a) Price rises by 10 percent, and the quantity demanded falls by 2 percent (b) Price falls by 5 percent, and the quantity demanded rises by 4 percent. (c) Price falls by 6 percent, and the quantity demanded does not change. (d) Price rises by 2 percent and the quantity demanded falls by 1 percent.

If the demand for a product is inelastic but the supply is elastic, the ________ will...

If the demand for a product is inelastic but the supply is elastic, the ________ will bear the tax incidence. A) government B) producer C) consumer

iv) In your opinion, to what extent the perfectly elastic demand differs from perfectly inelastic demand....

iv) In your opinion, to what extent the perfectly elastic demand differs from perfectly inelastic demand. Support your answer with suitable graph.

The demand for salt is inelastic, and the supply of salt is elastic. The demand for...

The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on . buyers of salt and the buyers of caviar. buyers of...

Subjects