Final answer:
The demand for a specific brand like Chevrolet is more price elastic than the demand for all cars because there are more substitutes. An increase in incomes will generally increase demand, shown by a rightward shift of the demand curve. Carmakers will respond differently to cost changes depending on whether demand is elastic or inelastic.
Step-by-step explanation:
Price Elasticity and Demand for Cars
When we consider the demand for a specific brand of car, such as Chevrolet, compared to the demand for all cars, we need to explore the concept of price elasticity. Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. If demand is elastic, consumers are more sensitive to price changes, while inelastic demand indicates that consumers are less sensitive to price changes.
In terms of the demand for a specific brand like Chevrolet, it is likely to be more elastic than the demand for all cars. This is because consumers can substitute the Chevrolet with other brands if the price of Chevrolet vehicles increases. However, the overall demand for cars might be more inelastic because consumers who need a vehicle might not be able to substitute other forms of transportation easily.
If the economy expands and incomes rise, ceteris paribus, people will have more purchasing power, making cars more affordable. Graphically, this would be shown by a shift to the right of the original demand curve Do, indicating an increase in quantity demanded at each price level. This shift in the demand curve illustrates how changes in income affect market demand.
Carmakers can pass on production costs to consumers if the demand for their cars is inelastic since consumers are less likely to reduce their quantity demanded in response to a price increase. Conversely, if the demand is elastic, manufacturers might absorb the cost rather than increasing prices. If the elasticity is 1.4 at current prices, this indicates that demand is elastic, and if prices were lowered, quantity demanded would increase by a greater proportion, possibly leading to higher total revenues.