Final answer:
The automobile's cost recovery limit for 2017 is based on 2017's limits, not 2015's. Carmakers may pass on costs to consumers if demand is inelastic but may have to bear costs if demand is elastic.
Step-by-step explanation:
The statement that if an automobile is placed in service in 2015, the limitation for cost recovery in 2017 will be based on the cost recovery limits for the year 2015 is False. The cost recovery limits for depreciation (also known as the Section 179 deduction limits) are established by the Internal Revenue Service (IRS) and typically change every year to account for inflation and legislative changes. Therefore, the cost recovery limits that apply are the limits for the actual year in which the cost recovery (depreciation) is being claimed, not the year when the automobile was placed in service.
In relation to the concept that carmakers can pass cost along to consumers if the demand for these cars is inelastic, this is true because consumers are less responsive to price changes and are more likely to absorb the higher costs without significantly changing their purchasing behavior. Conversely, if the demand for these cars is elastic, it means that consumers are sensitive to price changes, and an increase in price might lead to a significant reduction in the quantity demanded. In this scenario, carmakers may have to bear the cost of additional equipment or production changes themselves, as they cannot easily pass these costs on to consumers without the risk of losing sales.