Monday, August 15, 2011

$4/gallon gasoline makes "chumps" out of pickup owners

Consumers are buying pickup trucks with V6 engines. This is surprising because

V8 engines are almost synonymous with pickup trucks. Only commercial fleets and people on the tightest budgets buy full-size pickups with V6 engines. All the truck-makers offer them, but usually only on low-end, stripped-down versions. Sometimes customers can get V6s only in regular-cab models with two-wheel drive — what one car-company spokesman called “the chump specification.”

But at Ford, the smaller, more economical engines are now outselling big V8s. An economist would say that this change was perfectly predictable due to the negative cross elasticity of demand for V6 engines with respect to the price of gasoline. Note that negative (positive) cross elasticity implies that two products are complements (substitutes).

No comments:

Post a Comment