# Are Electric Cars Elastic Or Inelastic?

1. HEVs and BEVs have direct demand elasticities of 0.97 and 0.99, respectively, which are somewhat less price elastic than gasoline cars. With a direct elasticity of 1.72, PHEVs appear to be the most price elastic class among passenger cars.

## Is Tesla inflexible or supple?

Tesla automobiles have a low price elasticity of demand. This indicates that the price of a product is extremely important to customers. This also means that when the price is reduced, there will be a greater increase in demand in proportion to the reduction in price.

## Is the supply of automobiles inelastic?

(a) Explain if demand for private automobiles in Singapore is elastic or inelastic in terms of price and income.

(b) Examine the impact of a sharp increase in the price of Certificates of Entitlement in Singapore on consumer spending on various types of automobiles.

### Introduction

a) The price elasticity of demand (PED) for an item is a measure of the amount demanded’s response to price changes, ceteris paribus. The income elasticity of demand (YED) for a good is a measure of how responsive demand is to changes in income, assuming all other factors remain constant.

### Body

In Singapore, demand for private cars is anticipated to be price elastic. PED can be calculated using the following formula:

Because the PED for a good is negative because to the law of demand, economists commonly omit the negative sign. If the PED for a good is more than one, as in the case of luxury watches, the demand is price elastic, meaning that a change in price will result in a bigger percentage change in the quantity required. If the PED for a good is less than one, as in the case of food, the demand is price inelastic, meaning that a change in price will result in a lesser percentage change in the quantity demanded. Due to a variety of factors, private car demand in Singapore is expected to be price elastic. In Singapore, private-hire vehicle services, taxi services, bus services, and train services are all viable alternatives to private cars. Some of these alternate modes of transportation are capable of replacing private automobiles. The types of vehicles used to provide taxi and private-hire automobile services, for example, are the same as those used by private motorists, and hence give a similar level of comfort and convenience. Due to the small size of the country, private cars are not required in Singapore. Singapore has a land size of only 720 square kilometers. In Singapore, a considerable part of income is spent on private vehicles, which are expensive due to the high cost of a Certificate of Entitlement (COE) and the hefty Additional Registration Fee (ARF).

Depending on the type of private car and the income group, demand for private cars in Singapore may be income elastic or inelastic. YED is a mathematical expression that can be written as

The good is a normal good if the YED for it is positive, as in the case of clothing. A normal good is one whose demand rises in tandem with consumer income. Normal things are divided into two categories: necessities and luxuries. A necessity’s YED is between zero and one, indicating that demand is income inelastic. When consumers’ income rises, the demand for a necessity rises by a smaller proportion. When the YED for a luxury exceeds one, it indicates that demand is income elastic. A luxury item is one whose demand grows at a faster rate as consumer income rises. When the YED for a good is negative, as it is in the case of public transportation, the good is inferior, and demand will diminish as consumers’ income grows. High-end private automobiles, such as BMWs, are likely to be considered a luxury in Singapore, and so the YED will be greater than one, indicating that demand will be income elastic. In Singapore, mid-range private vehicles such as Honda Civics are considered to be a need, hence the YED is expected to be between zero and one, indicating that demand is income inelastic. In Singapore, low-end private automobiles such as Chery QQ cars may be considered inferior goods, and hence the YED may be less than zero. Due to their high income levels, private cars are likely to be a need for high-income persons, and thus demand is likely to be income inelastic. Private automobiles, on the other hand, are considered to be a luxury for low-income persons due to their low income levels, and hence demand is likely to be income elastic.

### Conclusion

Finally, demand for private automobiles in Singapore is expected to be price elastic, with income elasticity varying depending on the type of private car and income category.

b) Consumer expenditure on a good is the amount of money spent on a good by consumers, which is the sum of the price and quantity. With reference to the concepts of demand, supply, price elasticity of demand, income elasticity of demand, and price elasticity of supply, the effects of a sharp increase in the prices of Certificates of Entitlement (COEs) in Singapore on consumer expenditure on various types of cars can be discussed.

An increase in demand may result in a price increase for COEs in Singapore. The quantity of a good that customers are willing and able to buy at each price throughout time, ceteris paribus, is the demand for that good. Assume that consumer income in Singapore is increasing, as is the case in most economies. Because the YED is positive, which suggests that cars are a normal good, a rise in consumer income will lead to an increase in demand for them. Because the demand for COEs is derived from the need for automobiles, a rise in the demand for cars will lead to a rise in the demand for COEs, resulting in a price increase. Because the supply of automobiles at the quota is perfectly price inelastic, an increase in demand will result in a price increase without increasing the quantity. As a result, consumer spending will increase.

In the image above, a rise in demand (D) from D0 to D1 leads to a rise in price (P) from P0 to P1 due to the car quota, which causes the supply curve (S0) to be vertical at Q0. At Q0, the quantity (Q) remains constant. In Singapore, high-end cars are commonplace, thus the YED is favorable. As a result, a rise in consumer income will result in an increase in demand, which will lead to an increase in consumer spending. Mid-range cars, like high-end cars, are a common good in Singapore, thus the YED is likewise beneficial. As a result, a rise in consumer income will lead to an increase in demand, which will result in an increase in consumer spending. Unlike high-end automobiles, which are likely to have a YED larger than one, indicating that demand is likely to be income elastic because they are a luxury, mid-range cars are likely to have a YED between zero and one, indicating that demand is likely to be income inelastic because they are a necessity. As a result, compared to high-end cars, the increase in demand for mid-range cars, and thus the increase in consumer spending, is expected to be smaller. In Singapore, low-end cars may be considered inferior goods, and hence the YED may be less than zero. If this occurs, a rise in consumer income will result in a fall in demand, which would result in a decrease in consumer spending.

A decline in supply could lead to a price increase for COEs in Singapore. The quantity of a good that enterprises are ready and able to sell at each price over a period of time, ceteris paribus, is the supply of that good. To improve traffic conditions, the Land Transport Authority (LTA) may reduce the supply of COEs, resulting in a price increase. When the supply of COEs decreases, the supply of cars decreases, resulting in a price increase and a decrease in quantity. Although an increase in price will increase consumer spending, a decrease in quantity will reduce consumer spending. When the supply of autos falls, the PED will determine whether consumer expenditure rises or falls. Due to the significant proportion of money spent on the good and the fact that vehicles are often expensive, demand for cars is likely to be price elastic. As a result, the quantity will likely reduce by a greater proportion than the price increase, resulting in lower customer spending.

In the graphic above, a decrease in supply (S) from S0 to S1 results in a substantial drop in quantity (Q) from Q0 to Q1 and a modest rise in price (P) from P0 to P1. This is due to elastic demand, which gives birth to the relatively flat demand curve (D0). Because high-end cars are expensive in Singapore, a considerable part of money is spent on them. As a result, demand is likely to be price elastic, meaning that a fall in supply will likely result in a decrease in consumer spending. Although mid-range cars are less expensive than high-end cars, they are nonetheless expensive, and hence a significant percentage of money is spent on them. As a result, demand is likely to be price elastic, meaning that a reduction in supply will likely result in a reduction in consumer spending. However, because the PED for mid-range automobiles is lower than the PED for high-end cars due to the lower proportion of income spent on mid-range cars, the reduction in consumer spending on mid-range cars will be smaller than the reduction in consumer spending on high-end cars. Because low-end cars are the least expensive of the three types of cars, the proportion of money spent on them is the smallest. As a result, demand could be price inelastic. If this occurs, a loss in supply will result in an increase in consumer spending since the corresponding increase in price will be greater than the proportionate decrease in quantity.

### Evaluation

In the end, some governments will need to decrease the usage of private cars in order to reduce traffic congestion and pollution. The government of Singapore is a good example. Due to the high level of affluence in Singapore, there is a great demand for private cars. Singapore, behind Qatar and Luxembourg, has the world’s third highest GDP per capita, according to the International Monetary Fund. Due to the country’s tiny size, however, there is a limited quantity of road space in Singapore. Singapore has a land size of only 720 square kilometers. In the absence of government action to minimize the usage of private automobiles in Singapore, a strong demand for private cars combined with a limited amount of road space will almost certainly result in severe traffic congestion. Furthermore, in order to alleviate traffic congestion, the government should not only reduce the usage of private cars, but also regulate the use of specific roadways at specific times of day. The Pan Island Expressway and the Central Expressway, for example, are congested in the early mornings when many people commute from their homes to their businesses, and in the late afternoons and early nights when many people commute from their employers back to their homes. As a result, the government should impose a toll on these highways during certain hours in order to minimize traffic congestion. For example, to relieve traffic congestion, the Singapore government charges an Electronic Road Pricing (ERP) toll on major expressways in the early mornings, late afternoons, and early evenings.

The question will be examined in greater depth in economics tuition by the Principal Economics Tutor.

## Are there any positive externalities associated with electric vehicles?

The transition to electric vehicles is well underway. By 2025, Norway aims to have all new cars sold as zero-emission vehicles. China is one of the most important drivers of the EV revolution. Models from Tesla, Chevrolet, and Nissan are driving considerable growth in the US market. By 2040, the United Kingdom and France will have banned the sale of new petrol and diesel automobiles.

Electric vehicles are seen as a beneficial social externality of consumption. Governments have tried several programs to promote consumer demand in order to combat global warming.

But how long will governments continue to support the demand for electric vehicles? There’s also the issue of hidden costs for stakeholders such as the Democratic Republic of Congo, which is a significant supply of cobalt for electric vehicle batteries.

## Are automobiles completely flexible?

• When a product’s demand is completely determined by its price, it is said to have perfect elastic demand.
• The elasticity of demand states that when the price changes, the demand changes as well.

## Are Tesla owners well-off?

Tesla automobiles have been primarily for the wealthy for years, however we do know a lot of people who own a Model S or Model X and aren’t necessarily wealthy. They do, however, do well financially and have a lot of lovely stuff. This is mostly attributable to their priorities and financial management. Keep in mind, though, that if you don’t have much money, it’s difficult to manage it efficiently.

## Is a sports car flexible or rigid?

For example, if the price of a vital drug increased by 1% from \$200 to \$202, while demand decreased by less than 1% from 1,000 to 995 units, the medication would be termed an inelastic good. The drug would be termed perfectly inelastic if the price rise had no effect on the quantity demanded. Because they are required for survival, necessities and medical treatments are relatively inelastic, but luxury products, such as cruises and sports vehicles, are relatively elastic.

## Would power demand be elastic or inelastic? Why?

In the short run, electricity demand is very price and income inelastic. Industrial electricity use has a long-run price elasticity of 0.75 to 1.01.

## Are electric automobiles a worthwhile investment?

One of the reasons that EVs are unlikely to be deemed a merit good is that owning a personal vehicle is a financial liberty, and the government will not pay for an electric vehicle’s insurance.