Is luxury cars elastic or inelastic?

When a good or service is a luxury or comfort good, demand is highly elastic in terms of prices compared to a necessary good. With regard to price elasticity of demand, we can conclude with the help of some well-known facts that the price elasticity of demand for luxury cars is less elastic than the price elasticity of demand for mass-produced cars. We've all seen ads in print and electronic media announcing sales events for mass-produced vehicles such as Toyota, Ford and GM, etc. But we rarely hear about sales at Bentley, Ferrari or Rolls Royce.

This makes sense because if a good or service has elastic demand, the total revenues of sellers will increase through decreasing prices, because the proportion of increase in sales will be greater than the proportion of decreased prices. But if a good or service has inelastic demand, lower prices or sales will have the reverse impact. In this case, luxury cars have inelastic demand and mass-produced cars have elastic demand. This is why sales help dealers increase revenues in case of mass-produced vehicles, but sales are not attractive to dealers.

Compared to essentials, luxury items are very elastic. Goods with many alternatives or competitors are elastic because, as the price of the good increases, consumers switch purchases to substitute items. Revenue and elasticity are related as consumer incomes increase, and so does demand for products. A price change won't make them wait until later, when the price drops to buy the car.

They will buy the vehicle at the given price, since it is absolutely necessary to have the car. However, this is not true for the luxury car market. Luxury cars are a much bigger purchase than buying a practical commuting vehicle. A consumer in the market for a luxury car can wait until there is a decrease in price before buying the vehicle, which makes demand elastic.

Demand for private cars can be elastic or inelastic in Singapore depending on the type of private car and income group. The mid-size luxury sedan segment offers consumers a good combination of quality components and craftsmanship, luxury amenities and great power for the daily commute. This may be due to income differentials between consumers of luxury cars and mass-produced cars, but it is also due to some factors not related to price. Therefore, the increase in demand for mid-range cars and therefore the increase in consumer spending is likely to be lower compared to high-end cars.

In the luxury car market, there are many vehicles that feature high-quality workmanship, luxurious details and powerful transmissions. Therefore, they would lower their demand for luxury products, including cars, by lower margins compared to those at the bottom of the economic hierarchy. The Lexus had a smooth ride with luxurious details at all times, while the Cadillac had a good combination of performance and luxury. Although mid-range cars are cheaper than high-end cars, they are still quite expensive and, therefore, the proportion of income spent on mid-range cars is still quite large.

Conversely, for low-income people, because of their low income levels, private cars are likely to be a luxury, and therefore demand is likely to be income elastic. There are many substitutes for private cars in Singapore, including private car hire services, taxi services, bus services and train services. The brands' flagship models were not chosen, as the features and amenities are very different from one car to another, to such an extent that it would be almost impossible to compare the models. The proportion of income spent on private cars is large in Singapore, as private cars are expensive mainly due to the high cost of a Certificate of Law (COE) and the high Additional Registration Fee (ARF).

But luxury car buyers won't worry about gas prices because they can afford it, and more importantly, the factors that influence their buying decisions are mostly non-financial. For example, luxury goods, such as cars, can be attractive because discrimination is practiced according to the quality or model of the product. Some luxury car buyers may have private jets, but jets are better suited for long-distance travel. .

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Minnie Langehennig
Minnie Langehennig

Wannabe social media practitioner. Hipster-friendly food expert. Wannabe music specialist. Avid tv specialist. Passionate tv evangelist.