Transport economists Lasse Fridstrm and Vegard stli studied the demand for cars in Norway between 2002 and
Question:
Transport economists Lasse Fridstrøm and Vegard Østli studied the demand for cars in Norway between 2002 and 2016. Regarding gasoline-powered cars, the own-price elasticity was −1.094, and the cross-price elasticities with respect to the prices of gasoline, electricity, and electric cars were −0.71, 0.06, and 0.19 respectively. As for electric cars, the own-price elasticity was −0.99, and the cross-price elasticities with respect to the prices of electricity, gasoline, and gasoline-powered cars were −0.18, 0.38, and 0.35 respectively.
a. Referring to the above data, discuss whether gasoline cars and electricity are substitutes or complements.
b. Electric cars are more expensive than gasoline cars. Compare the incomes of people who buy electric cars vis-à-vis those who buy gasoline cars.
c. Considering the buyers’ incomes, explain why the demand for electric cars is less price elastic than the demand for gasoline cars.
d. Why would the short-run demand for gasoline cars be less elastic with respect to the price of gasoline than the long run demand?
Expert Answer:
a Gasoline cars and electricity are substitutes b The incomes of people who buy electric ca... View the full answer
