Answer to Question #140755 in Microeconomics for Max jain

Question

There is high cross elasticity between new and old cars. Explain

Answer 1

I believe even in rapid modernization of the motor vehicle sector the responsiveness in quantity demand for new cars is high as compared to old cars. This is because, new cars are up to date and the repair of them, for instance, spare parts can be easily accessed since it is available in market. Even as prices of old cars fall the cross elasticity falls, since people fear the repair costs that may be much more expensive.