Ford Motor Company announced a major rebate program for its cars and trucks. The rebate program amounts to a simple reduction in price. The company executives hope to increase revenue as a result of this rebate program. What economic explanation would justify this decision ?

Price elasticity

Explanation:

The company needs to check that the elasticity of demand is such that a decrease in the price would result in increase in the demand for the cars and trucks. Only when the demand is elastic, a cut in price would result in increase in demand for cars.

Here we can recall the concept of price elasticity which measures the responsiveness of change in demand of a commodity (in our case cars and trucks) due to change in the price of that commodity.

Ed= % change in quantity demanded / % change in price â¦.(1)

= (â²Q/Q)*100 / (â²P/P)*100

Here â²P refers to change that is difference between the price before cut and price after cut; similarly â²Q refers to change in quantity demanded for cars and trucks before price cut and after the price cut.

After simplification, we get

= (â²Q/â²P) (P/Q)

We can clearly notice in the formula (1) that if 1 % change in the price of car results in more than 1 % change in the demand for cars, the price cut is justifiable and profitable for the company and will lead to increase in the revenues for the company.

what do you mean.why did u repeat the question.

i mean, there is a lot of homeless people. but it is a very busy place and always in need for people who can be busy so it's not impossible to find one.