Question

•Evaluate the elasticity of demand for a car by applying a minimum of two elasticity determinants. Does the car likely have an elastic or inelastic demand based upon your evaluation of factors influencing the price elasticity of demand? How will considering these elasticity determinants impact product revenue?

Answer 1

A car is a luxury good and not a necessity . Firstly , we may say that elasticity of demand for a car is determined by its nature , here a car is considered as a luxury item . So its importance on customer's budget determines elasticity . If a car becomes more costly then a consumer will not cut down on consumption of necessities like food and medicine to buy a car , this makes demand for car highly elastic in nature .

Secondly , elasticity of demand for a car can also be determined by substitutes available . If car is costly people will use public transport or other forms of vehicles available , also if a particular car is costly then people might opt for other close substitutes of that car manufactured by other companies . So this makes a car more elastic .

Thus , car has an elastic demand .

When the price of car falls people 's demand for cars rise very much , so total revenue increases for the company . But when price of car rises , quantity demanded falls more than proportionate than price , so total revenue also falls .

Total revenue moves in the direction of quantity changes of demand .