Consider two makes of car: A and B. A has lots of speed and a little comfort, whereas B has lots of comfort but only a little speed. The producer of brand A wants to increase demand for the product and tries lowering the price, but finds only a very small increase in demand. Why?

Question

Quizplus · Accepted Answer

Cars A and B cater to different preferences (speed vs. comfort), making them not close substitutes. A price reduction in A does not significantly affect its demand because consumers who prefer B's comfort over A's speed are not swayed by the price change.

Consider Two Makes of Car: a and B