Based on your understanding of elasticity, will the elasticity of demand for Hon

Question

Based on your understanding of elasticity, will the elasticity of demand for Honda sedans increase, decrease, or remain the same when each of the following events occurs? Explain your answer.

a. Other car manufacturers, such as Toyota, decide to make and sell sedans. [2 marks]

b. Sedans produced in foreign countries are banned from the European market. [2 marks]

c. Following increased advertisements, Europeans believe that sedans are safer than ordinary passenger cars. [2 marks]

d. In the long run, new sedan models are produced. [2 marks]

Explanation / Answer

a) The price elasticity of demand for Honda sedans will increase because more substitutes are available.

b) The price elasticity of demand for Honda sedans will decrease because less substitutes are available.

c) The price elasticity of demand for Honda sedans will decrease because other cars are considered not a substitute of Honda sedans.

d) The price elasticity of demand for Honda sedans will increase because more substitutes are available in the long run due to production of new sedan models.

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