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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
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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.
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