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Tesla Deliveries Rose 83% in the Latest Quarter

EconEye Admin

Tesla’s global deliveries surged 83% in the second quarter. The long-range Model Y now starts at $50,490, compared with $65,990 in early January.—wsj.com

Answer the following questions to check your understanding of the story.

If Tesla’s Model Y experienced an increase in sales in the second quarter similar to overall Tesla deliveries, what is its price elasticity of demand?

The price elasticity of demand for the Model Y is ____________.

Wrong! - The price elasticity of demand is calculated as the percentage change in the quantity demanded divided by the percentage change in price. What is the price elasticity of demand for the Model Y?

That's Right! - The price elasticity of demand is calculated as the percentage change in the quantity demanded divided by the percentage change in price, where the changes are calculated relative to the average quantity and average price. In the second quarter, the quantity demanded increased by 83 percent of the initial quantity or 58.7 percent of the average quantity. Calculating the percentage change in price using the average price, price decreased by 26.6 percent. So, the price elasticity of demand equals 58.7 percent/26.6 percent, which is greater than 2.

Given your calculation of the price elasticity of demand, how does the cut in price change Tesla’s total revenue?

Demand is _____________, so the price cut _____________ total revenue.

Wrong! - The price elasticity of demand exceeds one. Is demand elastic or inelastic? If price falls by 1 percent, by how much does the quantity sold change? What happens to total revenue?

Well Done! - The price elasticity of demand exceeds one, so demand is elastic. When demand is elastic, a 1 percent price cut increases the quantity sold by more than 1 percent and total revenue increases.

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