In economics and business researches, the price elasticity of demand (PED) is an elasticity that calculates the origin and extent of the relations between modifications in quantity commanded of a good and modifies in its price.
The paper goes into solemn features into the techniques and outlines of multifaceted research of the response of the automobile market to alter in automobile production features, comprising produce price, cost of use, and presentation. For obvious causes, the details of this research are beyond the range of this paper. Rather, it is worked to condense the consequences of this paper to a more essential shape, so that the price elasticity of demand for the automobile can be researched.
Reduced to the simplest form, there is the following:
% change in demand = (a × P) + (b ÷ wgt) + (c × MPG ÷ (gas price)) + d
where:
- P = price of the car
- wgt = weight of the car, in kg
- MPG = rated EPA fuel economy, in miles per gallon
- gas price = price of habitual gasoline
Now, the coefficients for this equation are the purpose of the automobile model. Below are strictures for the Ford Escort and the Ford Taurus:
Note: The takings terms used for deriving the over coefficients were $35,000 for the Escort and $60,000 for the Taurus:
Equation Coefficients
The values of the various terms for the two vehicles are as follows:
Baseline Assumptions for Terms
Note: The takings terms used for deriving the over coefficients were $35,000 for the Escort and $60,000 for the Taurus.
If the Ford Motor Company desires to decrease its account and introduces sheer price reductions, it recovers sales on a provisional, not an enduring, basis. Customers, perceiving a barter, buy tomorrow’s requirements today. Sales, in effect, are stolen from the prospect. Sales get bigger and, then, in the next time phase, they fall lower trend. This fleeting auctions reply to a linked price refuse in an established production market is a short-run price elasticity which is required to be illustrious from the long-run price elastic retort of demand during the stage of market diffusion.
The principle matter then is whether the flow in ostensible arranges and computers, statements tools, and semiconductors in the first two months of 2007 is a short run or a long run price elastic retort. If the automobile market is drenched, then it will establish to be a short-run price elastic answer. Sales will be a shape the future and transactions will fall underneath a slow general growth trend in pending districts. This will be a calamity for the production and high-tech stakeholders.
Industry participants and investors have adaptive or rearward-looking anticipations for manufacturing sales enlargement. As automobile sales grew earlier for longer in the 2000s, they consider they will go on to do so, despite the growing symbols of market diffusion. Therefore, they interpret every decelerate as provisional and every unplanned in sales as a recommencement of the new higher trend. The order mending in January / February 2007visible in the above table is being regarded as a harbinger of resumption of the growing trend of the 2000s. If in its place, it is a short-run value elastic retort to drastic price cuts, coming quarters will create a trend in unit sales that will fall below the single digit rate of 2006 despite enormous production price decrease.
References
Bryan, G. A., & Whipple, T. W. (2008). Tuition Elasticity of the Demand for Higher Education among Current Students: A Pricing Model. Journal of Higher Education, 66(5), 560.
Green, D. P., & Blair, I. V. (2007). Framing and the Price Elasticity of Private and Public Goods. Journal of Consumer Psychology, 4(1), 1-32.
Kyer, B. L., & Maggs, G. E. (2007). Monetary Policy Rules, Supply Shocks, and the Price-Level Elasticity of Aggregate Demand: A Graphical Examination. Journal of Economic Education, 26(4), 364-372.