Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer. a. Other car manufacturers, such as General Motors, decide to make and sell SUVs. b. SUVs produced in foreign countries are banned from the American market. c. Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars. d. The time period over which you measure the elasticity lengthens. During that longer time, new models such as four-wheel-drive cargo vans appear.

In the context of price elasticity of demand, market competition plays a pivotal role in shaping how consumers react to price changes. When competition in the SUV market increases, as in the scenario where General Motors starts producing and selling their own SUVs, consumers are presented with a wider array of choices.

Increased competition often leads to a higher price elasticity of demand. This happens because consumers can easily find alternative products if they are not satisfied with the price of a particular brand's offering. If Ford's SUVs become too expensive, buyers might shift to competitors, thereby increasing Ford's price elasticity of demand. It is crucial for businesses to monitor their competitors' activities since their pricing strategies could significantly impact the demand for a company's products.

Substitute goods are products that can be used in place of each other. When substitutes for a product, like Ford's SUVs, are widely available and acceptable to consumers, the demand for the product becomes more elastic. In the case where foreign SUVs are banned, the range of substitute goods diminishes, which typically leads to a decrease in price elasticity.

Consumers, having limited choices, may be more willing to absorb price increases due to the lack of alternatives. This concept is crucial for understanding market dynamics, as the availability of substitute goods directly influences consumer behavior and pricing strategies.

Consumer perception significantly affects demand elasticity. If advertising campaigns convince the public that SUVs, such as those manufactured by Ford, are substantially safer than other vehicles, the perceived value of these SUVs rises. Safety becomes a selling point that may reduce sensitivity to price changes.

In this scenario, even if prices rise, demand may remain steady or even increase, leading to lower elasticity. This illustrates how the perceived benefits of a product, such as safety features, can outweigh cost considerations in the minds of consumers.

The basic economic principle of supply and demand is deeply intertwined with price elasticity. Prices tend to rise when demand exceeds supply and fall when supply exceeds demand. The price elasticity of demand is primarily concerned with how demand fluctuates in response to price changes.

If Ford SUVs are in high demand because of preference, brand loyalty, or perceived value, the company might be able to increase prices without significantly reducing the quantity demanded. Conversely, when there is plenty of supply and competitive alternatives, steep price increases might lead to a sharp decline in demand, signifying high price elasticity.

The elasticity of demand can change depending on the time frame being considered. Over a short period, consumers may not react significantly to a price change due to limited information or the urgency of their needs. However, over a longer period, consumers have the luxury of time to adjust to price changes, explore different alternatives, and make more informed decisions.

As new models and substitutes enter the market, like the four-wheel-drive cargo vans, consumers may shift their preferences, which tends to increase the elasticity of demand for the original product—in this case, Ford SUVs. The time period effect underscores the importance for businesses to anticipate long-term market trends and adjust their strategies accordingly.