Economics
Elasticity is a measure of the sensitivity of one thing, to another
(Bannock, 2011, p.116). It could be divided into price, income and cross-price elasticity of demand and supply and they are known as
PED, YED ,XED and PES. They can be used to measure how the change in demand and supply of a product responds to the change in price, income and other commodities. Calculating price, income and crossprice elasticity can review the new cars market, it can be found that the demand and supply of new cars are always affected by these three factors. This essay will examine the economic factors that affect the elasticities for new cars.
First of all, this essay will now examine the PED. The price elasticity of demand "measures the responsiveness of quantity demanded to the price change of a product", and It can be calculated by "the percentage change in the quantity demanded divided by the percentage change in the price of a product" (Gillespie, 2011, p.56). If an answer of price elasticity is lower than 1 then the product could be said as price inelastic. This means the percentage change in quantity demanded of the product is smaller than the price change, demand is less related to the price change(Figure2). However, a product will be price elastic when the measurement of PED is greater than 1 which means the percentage change in quantity demanded is larger than the price change, demand is very sensitive to the price change(Figure1).
Figure1
Quantity demanded is very sensitive to the price change
Figure 2
Quantity demanded is less sensitive to the price change
(Source: Gillespie, 2009:9)
Moreover, there are some factors affecting the PED in new cars. New cars are price elastic when they face similar competing brands. For example, two new cars Audi S3 Sportback and BMW 135i, which have the similar functions and famous brand images. They have the same price meanwhile and Audi and BMW are two competing brands
(TopGear, 2013). However, if the
(Bannock, 2011, p.116). It could be divided into price, income and cross-price elasticity of demand and supply and they are known as
PED, YED ,XED and PES. They can be used to measure how the change in demand and supply of a product responds to the change in price, income and other commodities. Calculating price, income and crossprice elasticity can review the new cars market, it can be found that the demand and supply of new cars are always affected by these three factors. This essay will examine the economic factors that affect the elasticities for new cars.
First of all, this essay will now examine the PED. The price elasticity of demand "measures the responsiveness of quantity demanded to the price change of a product", and It can be calculated by "the percentage change in the quantity demanded divided by the percentage change in the price of a product" (Gillespie, 2011, p.56). If an answer of price elasticity is lower than 1 then the product could be said as price inelastic. This means the percentage change in quantity demanded of the product is smaller than the price change, demand is less related to the price change(Figure2). However, a product will be price elastic when the measurement of PED is greater than 1 which means the percentage change in quantity demanded is larger than the price change, demand is very sensitive to the price change(Figure1).
Figure1
Quantity demanded is very sensitive to the price change
Figure 2
Quantity demanded is less sensitive to the price change
(Source: Gillespie, 2009:9)
Moreover, there are some factors affecting the PED in new cars. New cars are price elastic when they face similar competing brands. For example, two new cars Audi S3 Sportback and BMW 135i, which have the similar functions and famous brand images. They have the same price meanwhile and Audi and BMW are two competing brands
(TopGear, 2013). However, if the