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    price elasticity of Infiniti cars

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    I am writing a paper on price elasticity. I am to select a product and state whether it has price elasticity or price inelasticity. I have selected the Infiniti M35 car. The starting price for year 2008 is $43,050, year 2007 starting price was $41,450, and year 2006 starting price was $42,700. What would be the impact of raising the price of this vehicle? What would be the impact of lowering price?

    Using this information about the Infiniti M35 from above, I am to determine substitutes and compliments. I am to address these components:

    a)What has happened to the price and quantity of the substitutes and complimentary goods/ services for your selected product over the last year?
    b)How have price adjustments impacted the demand for the selected product? That is what happens to the substitutes or complementary goods as a result of a price change?

    Could you point me to reference material also.

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    Solution Preview

    An Infiniti M35, produced by Nissan Motor Co. Ltd., would be considered a luxury sedan, as other sedans can be purchased for about half the price. We need to determine if it's really a luxury good in the economic use of the word: a good for which demand increases more than proportionally as income rises. Some luxury goods are Veblen goods, meaning that they have a positive price elasticity of demand, in contradiction to the law of demand. In other words, more people want them when their prices increase, because of the status they represent. It seems unlikely that this particular car would be a Veblen good, as other cars are considered more prestigious.

    This article: fourwheeldrift.wordpress.com/2007/05/
    suggests the luxury sedans are often a substitute for larger domestic vehicles, such as SUVs.

    The Mackinac Center for Public Policy has published a list of the price elasticity of demand for many common goods. It is ...