Homework Help is Here – Start Your Trial Now!
Business
Economics
A group of economists found the following elasticities for the demand of new cars and usedcars. Provide a brief explanation to each of the following questions. Are the demand for new cars and used cars elastic or inelastic?  Are this products substitutes or complements? Are this products normal or inferior goods? What would you expect consumers to buy if theirincome is greatly reduce?

A group of economists found the following elasticities for the demand of new cars and usedcars. Provide a brief explanation to each of the following questions. Are the demand for new cars and used cars elastic or inelastic?  Are this products substitutes or complements? Are this products normal or inferior goods? What would you expect consumers to buy if theirincome is greatly reduce?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

A group of economists found the following elasticities for the demand of new cars and usedcars. Provide a brief explanation to each of the following questions.

Are the demand for new cars and used cars elastic or inelastic? 

Are this products substitutes or complements?

Are this products normal or inferior goods? What would you expect consumers to buy if theirincome is greatly reduce? 

This table summarizes the elasticity values for new cars and used cars across three types of elasticity: own-price elasticity, cross-price elasticity, and income elasticity. ### Elasticity Overview for New and Used Cars | | New Cars | Used Cars | |------------------------------------|----------|-----------| | **Own-price elasticity** | -1.25 | -0.45 | | **Cross-price elasticity** | 0.90 | 0.10 | | **Income elasticity** | 1.5 | -1.25 | #### Explanation of Terms: 1. **Own-price elasticity:** - **New Cars (-1.25):** Indicates that a 1% increase in the price of new cars would result in a 1.25% decrease in the quantity demanded of new cars, showcasing relatively elastic demand. - **Used Cars (-0.45):** Indicates that a 1% increase in the price of used cars would result in a 0.45% decrease in the quantity demanded of used cars, indicating inelastic demand. 2. **Cross-price elasticity:** - **New Cars (0.90):** This positive value suggests that new cars are substitutes for another good. A 1% increase in the price of the other good would increase the demand for new cars by 0.90%. - **Used Cars (0.10):** Suggests a weaker substitute relationship. A 1% increase in the price of the other good would increase the demand for used cars by 0.10%. 3. **Income elasticity:** - **New Cars (1.5):** This positive value indicates that new cars are a normal good. A 1% increase in consumers' income would lead to a 1.5% increase in the quantity demanded of new cars. - **Used Cars (-1.25):** This negative value indicates that used cars are an inferior good. A 1% increase in consumers' income would lead to a 1.25% decrease in the quantity demanded of used cars. This table provides valuable insights into the sensitivity of demand for new and used cars relative to changes in their prices, the prices of related goods, and consumer income.
Transcribed Image Text:This table summarizes the elasticity values for new cars and used cars across three types of elasticity: own-price elasticity, cross-price elasticity, and income elasticity. ### Elasticity Overview for New and Used Cars | | New Cars | Used Cars | |------------------------------------|----------|-----------| | **Own-price elasticity** | -1.25 | -0.45 | | **Cross-price elasticity** | 0.90 | 0.10 | | **Income elasticity** | 1.5 | -1.25 | #### Explanation of Terms: 1. **Own-price elasticity:** - **New Cars (-1.25):** Indicates that a 1% increase in the price of new cars would result in a 1.25% decrease in the quantity demanded of new cars, showcasing relatively elastic demand. - **Used Cars (-0.45):** Indicates that a 1% increase in the price of used cars would result in a 0.45% decrease in the quantity demanded of used cars, indicating inelastic demand. 2. **Cross-price elasticity:** - **New Cars (0.90):** This positive value suggests that new cars are substitutes for another good. A 1% increase in the price of the other good would increase the demand for new cars by 0.90%. - **Used Cars (0.10):** Suggests a weaker substitute relationship. A 1% increase in the price of the other good would increase the demand for used cars by 0.10%. 3. **Income elasticity:** - **New Cars (1.5):** This positive value indicates that new cars are a normal good. A 1% increase in consumers' income would lead to a 1.5% increase in the quantity demanded of new cars. - **Used Cars (-1.25):** This negative value indicates that used cars are an inferior good. A 1% increase in consumers' income would lead to a 1.25% decrease in the quantity demanded of used cars. This table provides valuable insights into the sensitivity of demand for new and used cars relative to changes in their prices, the prices of related goods, and consumer income.
Expert Solution
steps

Step by step

Solved in 4 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Elasticity of demand
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS