Elasticities & Market Structure

The board of directors at AutoEdge is actively discussing several options to address flagging revenue. One option continues to surface during each board meeting; that is, relocating the manufacturing operation back to the United States. Longtime Chief Financial Officer, Ingrid Adams, leads the group that is in favor of this option. Ingrid Adams approaches you in the company break room. “Hello,” she says. “I’m glad I saw you.””Hi,” you say. “What can I do for you?””I have a question about economics,” she says. “I think you can help me explain something to some shareholders on the board.”  “Economics! My favorite subject,” you say. “What’s your question?””If AutoEdge decided to increase its prices and return to the United States,” she says, “how would this action affect consumer demand? I want to know your opinion about elasticity.””Sure,” you say. “So you want to know if the elasticity for auto parts is considered to be relatively inelastic, relatively elastic, unitary elastic, perfectly elastic, or perfectly inelastic. Right?””Exactly,” she says.”I have an opinion,” you say. “Do you want to talk about it now, or do you want something in writing?””Something in writing would be best,” she says. “Would you explain your opinion so that I can respond to questions from other members of the board, too?” “I’d be glad to,” you say. “I’ll put something together this afternoon and get it to you before I leave today. Is that soon enough?””Perfect,” she says. “Thanks for your help.”

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