A large increase in gas prices creates a demand for cars with good gas mileage. It takes months for car companies to make these cars. How do you describe this market for cars?
A. inelastic
B. elastic
C. static
D. inferior
The market for cars in this scenario can be described as elastic.
To understand why, let's break it down:
When there is a large increase in gas prices, consumers' budgets are significantly affected. As a result, they become more price-sensitive and look for ways to reduce their expenses on gas. One way to accomplish this is by opting for cars with good gas mileage.
Now, the fact that it takes months for car companies to manufacture these cars highlights the time delay or lag in the production process. During this time, consumers have to make their purchasing decisions based on what is available in the market.
In an elastic market, changes in price or related factors influence consumer demand significantly. With the increase in gas prices, consumers have a strong incentive to prioritize cars with good gas mileage. The responsiveness of customer demand to changes in gas prices indicates that this market is elastic.
Therefore, the correct answer is B. elastic.