Which of the following is likely to have the smallest price elasticity of demand?

• A. A new Ford Mustang.
• B. A new Ford automobile.
• C. An automobile.
• D. A new automobile.

Answer: (D)

Price elasticity of demand tells us how strongly quantity demanded responds when price changes. For durable, high-cost purchases like a new automobile, customers tend to adjust slowly in the short run: they may delay buying, keep their current car longer, or accept the higher price rather than switch immediately to a very different option. This makes demand relatively inelastic in the short term.

Among the options, a new automobile is the broadest, least substitutable decision in the near term, so its quantity demanded changes least with price. A specific model like a Mustang has many close alternatives (other cars, used cars, similar sports models), which provides more substitution possibilities and a larger response to price changes. A Ford automobile covers a wider range of new cars, but still within the automotive market where substitutes are plentiful. An automobile in general includes even more potential substitutes, including different transportation modes, making demand more responsive to price changes.

Thus, a new automobile is likely to have the smallest price elasticity of demand.