Sunday, June 21, 2009

Unit 1: Porsche: A superior good?

The BBC reports rapidly declining Porsche sales

Porsche has been hit hard by the global recession. Porsche has seen its nine-month unit sales slump by more than a quarter after demand for its cars was hit by the worldwide recession.
Global sales at the German carmaker declined 28% to 53,635 vehicles between August 2008 and the end of April, compared with a year earlier.

Given the world recession has seen average incomes fall by no more than 5%,

a) Calculate the income elasticity of demand for Porsche cars and then explain why they might be considered a superior good
b) Explain 3 possible reasons why demand for Porshe cars (other than falling incomes) may hasve fallen
c) Using a S&D diagram, explain why this may be a good time to buy a Porsche (assuming you are still in a well paid job and can afford to buy one)

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