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?

The company believes its cars and trucks have elastic demand and a decrease in price will increase revenue from them. The economic justification is there are three determinants of elasticity of demand that could apply in this case. There are a number of substitutes available for Ford automobiles since there are many other auto producers in the market; the purchase of a new automobile takes a considerable proportion of income; and some may believe that buying a new car is a luxury. All of this means that automobiles have a high price elasticity of demand and that revenues for the company will increase if the price is decreased.