AS Paper 1, June 2024Introduction to Markets and Market Failure
AS Paper 1, June 2024, Q5(a)
In June 2023, Tesla further reduced the price of its Model 3 vehicle by £4 200 from £42 990. It has been forecast that the price cut will lead to a 15% increase in demand. Ceteris paribus, calculate the price elasticity of demand for the Model 3. You are advised to show your working.
Short answerCalculate2 marks
Context
Chief Executive Elon Musk said “affordability” was the biggest barrier to Tesla reaching a far larger market. Before recent price cuts for its electric vehicles, he said, “We weren’t sure about what the price elasticity of demand was for Tesla. We found that even small changes in price have a big impact on demand.”