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Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase,...

Question:

Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer.

a) Other car manufacturers, such as General Motors, decide to make and sell SUVs.

b) SUVs produced in foreign countries are banned from the American market.

c) Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars.

d) The time period over which you measure the elasticity lengthens. During that time, new models such as four-wheel-drive cargo vans, appear.

Elasticity - Definition:

Elasticity is the flexibility of a price and the demand for a item in the marketplace. For example, medicine is considered inelastic because it is a need; however, a boat is an elastic product as most individuals consider it a luxury item.

Answer and Explanation:

Please see the chart below for the answer to this question:

Action Price Elasticity Movement Notes
a) Other car manufacturers, such as General Motors, decide to make and sell SUVs. Increase Because there will be increased competition, the price of the Ford SUV will have to be flexible in order to compete.
b) SUVs produced in foreign countries are banned from the American market. Decrease With less competition, the Ford SUVs do not need to have flexibility in their pricing.
c) Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars. Remain the same While ad campaigns may get individuals to purchase more cars, they won't affect the price elasticity of demand.
d) The time period over which you measure the elasticity lengthens. During that time, new models such as four-wheel-drive cargo vans, appear. Increase Because of increased competition, Ford will have to be more dynamic in terms of its selling prices.


Learn more about this topic:

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What is Elasticity in Economics? - Definition, Theory & Formula

from Introduction to Macroeconomics: Help and Review

Chapter 4 / Lesson 8
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