1. a. The coefficient of Pj (1.2) is greater than that of Pa (.75). This implies that consumers perceive Japanese luxury cars (e.g., the Acura, Lexus and Infinity) as being close substitutes for
European luxury cars (e.g., BMW, Volvo, Mercedes and Audi) than are American luxury cars (e.g. Lincoln Continental and Cadillac). Taste and perception as to what is a substitute for a particular product is very subjective. However, we do recall that auto magazines were at one time very skeptical about whether Japanese cars could ever supplant in American consumers’ minds about the status, quality and image of the German luxury cars. Recent statistic indicate how successful the Japanese cars have been in taking market share away from the likes of BMWs and Mercedes in the U.S. luxury car market.
b. The coefficient of I (1.6) is greater than 1, indicating as expected that this is a luxury or superior product.
c. The absolute value of the price coefficient (.93) indicates that demand is relatively inelastic. This is not surprising, given the income levels of those who tend to buy these types of cars.
1. a. The coefficient of Pj (1.2) is greater than that of Pa (.75). This implies that consumers perceive Japanese luxury cars (e.g., the Acura, Lexus and Infinity) as being close substitutes forEuropean luxury cars (e.g., BMW, Volvo, Mercedes and Audi) than are American luxury cars (e.g. Lincoln Continental and Cadillac). Taste and perception as to what is a substitute for a particular product is very subjective. However, we do recall that auto magazines were at one time very skeptical about whether Japanese cars could ever supplant in American consumers’ minds about the status, quality and image of the German luxury cars. Recent statistic indicate how successful the Japanese cars have been in taking market share away from the likes of BMWs and Mercedes in the U.S. luxury car market.b. The coefficient of I (1.6) is greater than 1, indicating as expected that this is a luxury or superior product.c. The absolute value of the price coefficient (.93) indicates that demand is relatively inelastic. This is not surprising, given the income levels of those who tend to buy these types of cars.
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