Economics

COURSE PAPER

ELASTICITY

Carol Baisden

Microeconomics, Section 01

Mr. Nicholas Bergan

November 1, 2015

Consumer behavior or elasticity is a consumer’s response to a change in price of a good or service. Consumer behavior allows a customer to rank and prioritize purchases according to their elasticity of certain goods and their dependence on others (Lipschultz, 2008). When consumers recognize a change in price and respond strongly, they can adjust their consumption and therefore have their demand for that item become elastic.

Automobiles tend to have elasticity in them in regards to make, model, and features that the consumer is willing to pay for. Basic models and good fuel mileage become important as income goes down and elasticity for automobiles goes up. In a market with a declining demand for luxury items, such as vehicles, automobile makers must stay on top by enacting initiatives that will attract consumers. Ford Motor Company has used consumer behavior/elasticity to create a product line that not only meets consumer demands, but has also given Ford the competitive edge in the auto industry (Lipschultz, 2008). Ford has decoded the key of elasticity and consumer behavior. Its characteristics of reliability, fuel economy, and “world class dependability” have made it easy for consumers to purchase their automobiles (Lipschultz, 2008).

Ford Motor Company would have to reduce the price of their automobiles in order to increase the quantity that is demanded. Products that have elastic demand will increase the quantity demanded, and thereby the quantity sold, working to increase the total revenue.

With a 40% increase in sales, there would also be a 40% increase in the quantity that is demanded. As more amounts of the automobiles are being purchased, the supply of the vehicles will decrease.

If Ford Motor Company lowered its price on its vehicles, it would definitely affect substitute or complementary products. Consumers usually look for the best deals when purchasing a vehicle. They want more for their money and if Ford lowered the price on its vehicles, consumers would be purchasing more from them instead of the other automobile companies.

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