Compared with the overall market for automobiles, the demand for a specific car model like the Honda Accord is typically:

Compared with the overall market for automobiles, the demand for a specific car model like the Honda Accord is typically:

• A. probably elastic and more elastic than the demand for automobiles.
• B. probably inelastic and less elastic than the demand for automobiles.
• C. probably elastic but less elastic than the demand for automobiles.
• D. probably inelastic but more elastic than the demand for automobiles.

Answer: (A)

The main idea is that demand elasticity depends on how easily consumers can substitute one good for another. A specific car model like the Honda Accord has many close substitutes—other car models and brands. If the Honda’s price rises, many buyers can switch to a different model, so the quantity demanded of the Accord changes a lot in response to price. That makes its demand elastic. The overall market for automobiles, while it includes many models, is a broader category; substitution is spread across a wide range of options, and price changes affect the entire market rather than a single model. As a result, the market demand for automobiles is less responsive to a price change than the demand for an individual model. So the Honda Accord’s demand is elastic and more elastic than the demand for automobiles as a whole.

The main idea is that demand elasticity depends on how easily consumers can substitute one good for another. A specific car model like the Honda Accord has many close substitutes—other car models and brands. If the Honda’s price rises, many buyers can switch to a different model, so the quantity demanded of the Accord changes a lot in response to price. That makes its demand elastic. The overall market for automobiles, while it includes many models, is a broader category; substitution is spread across a wide range of options, and price changes affect the entire market rather than a single model. As a result, the market demand for automobiles is less responsive to a price change than the demand for an individual model. So the Honda Accord’s demand is elastic and more elastic than the demand for automobiles as a whole.