Auto parts demand elasticity.

The board at AutoEdge is considering changing its market from the United States and
reducing the price. The result would be an increase in demand. However, the board would like to
know whether auto parts elasticity is inelastic, inelastic, unitary elastic, relatively inelastic, or
relatively elastic. This paper, therefore, evaluates the different types of demand elasticity and
gives recommendations on which type of elasticity auto parts fall under
Perfect elasticity
Perfect elasticity is the elasticity under which there is one price at which an infinite
quantity can be sold. This type of demand is also called infinite elasticity. The equation for
perfect elasticity is E p = ∞.
Perfectly inelastic
Perfectly inelasticity refers to a scenario where there is no change in demand regardless
of the price. This can be demonstrated as E p = 0. For example, if AutoEdge were to increase its
prices by 10 %, there would be no change in the quantity demanded under perfectly inelastic
conditions.
Unitary elasticity
Unitary elasticity refers to a scenario where the change in quantity demanded is equal and
unitary to the change in price. This means that under this type of elasticity, a 1% change in price
would lead to a 1% change in quantity demanded.
Relatively elastic

Relatively elastic demand refers to a scenario where demand changes by a bigger margin
than the change in price (Keat et al., 2013). For example, if AutoEdge were to increase its prices
by 20% and the demand reduced by 30%, it could mean that auto parts demand is relatively
elastic.
Relatively inelastic demand
Relatively inelastic demand refers to the scenario where the quantity demanded changes
by a smaller margin than the change in price (Keat et al., 2013). For example, if the price of the
spare parts changed by 30% and the change in demand was 10%, this could signify relatively
inelastic demand.
Considering the above definitions, there is a need to also evaluate determinants of
elasticity and the unique product characteristics before deciding the type of elasticity that auto
parts fall under. The demand for auto parts is directly connected to the need for car service and
automotive repairs. The automotive industry also has high competition compared to other
industries, and as such, a price increase could make customers look for other options. This leads
to evaluating the ease with which customers could find substitutes. Considering the availability
of other auto parts brands in the American market, an increase in prices by Auto Edge would
cause its customers to find alternative sources. The proportion of total expenditures is another
key determinant of elasticity (Keat et al., 2013). Some auto parts can be quite pricey. However,
the changes in prices may not have a significant impact on the purchase decision because parts
need to be replaced for vehicles to operate, and in many cases, the decision cannot be postponed.
Besides prices, auto parts customers are also interested in the quality of auto parts, durability,
and guarantee of performance for some auto parts. For instance, shocks are one category of the
most purchased parts where customers require some performance guarantees in terms of years of

performance. Considering the above factors, the elasticity for auto parts is relatively inelastic.
This means that a change in prices causes a less than proportionate change in quantity demanded.

References
Keat, P., Young, P., & Erfle, S. (2013). Managerial Economics (7th ed.). Pearson. Retrieved
from
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