Question

For the following event, indicate the effect on the price elasticity of demand for Ford sport-utility vehicles (SUVs). Other car manufacturers, such as General Motors, decide to make and sell SUVs. The price elasticity of demand will ___. decrease remain the same increase

Answer 1

Answer:

Price elasticity will increase

Explanation:

Price elasticity is defined as a measure of how sensitive quantity demanded of a product is the changes in price.

As a general rule when price increases the demand Falls and when price reduces demand rises.

Mathematically,

Price elasticity = (change in quantity demanded) ÷ (change in price)

In the given scenario other car manufacturers such as General Motors, decide to make and sell SUVs.

This will create a substitute in the market.

Ford motors will be forced to reduce price in order to maintain or increase their clientele base.

As price reduces the price elasticity will increase.