Question

Luxury car makers announce a fall in next year's price of a luxury car and an increase in the ease in which credit can be obtained. What do you predict will happen to the demand for luxury cars​ today? You predict that the demand for luxury cars today​ _______.

Answer 1

Answer:

Demand for luxury cars will decrease massively today.

Explanation:

Demand for Luxury items is highly Elastic (>1). This means that quantity demanded will respond proportionately higher to price change.

Future Expectations about price also determine demand.

• If prices are expected to fall in future, demand  will decrease today (postponed at future lower prices). If prices are expected to rise in future, demand will increase today (reduced at future higher prices).
• However its important that these are not necessity goods, whose consumption urgency makes their demand inelastic i.e less respondent to price.

So : Luxury Cars having Elastic Demand, coupled with future lower prices & better credit facilities - will reduce their demand massively today, as it's expected to be highly demanded in future period rather than current period