Net+Worth+Used+car's+low+supply,+high+demand+drive+up+prices

Article Info-  [] Submitted by SHNS on Wed, 05/11/2011 - 09:48  [|By KATHLEEN PENDER, San Francisco Chronicle]  Explanation- The article explains that due to the economic recession, the demand for used cars has increased, due to high petrol price and shrinking inventories (people kept their cars longer. These factors have increased the demand for fuel-efficient cars by 20% since January. The average price for a 3-year-old used car is up 4.5%. The strongest category is premium compact, which is up 20%. Ever since the recession there has been a rapid decrease in new car production. From 1998 through 2007, new-car sales and leases ranged between 16 million and 17.8 million vehicles per year. That number dropped to around 13.5 million in 2008 and 10.6 million in 2009. It recovered slightly, to around 11.6 million in 2010. This supply and demand graph below will illustrate the change in demand for “used cars”. This due to the decrease in incomes of consumers, which then allows them to substitute new cars for used cars. The preference of used cars over new cars, is an example of opportunity cost. Vocabulary-
 * Supply- The amount of a good or service offered for sale.
 * Supply Curve-relates the supply of a good to its price, holding the prices of inputs constant.
 * Demand- The quantity of a good or service that people want to buy.
 * Demand Curve- relates the demand for a good to its own price, holding all other factors constant.
 * Determinants of demand- non-price factors that influence the demand for a product. (For this article decrease income, substituting used cars with new cars)
 * Equilibrium price- quantity supplied and quantity demanded are equal for competitive producers is their marginal cost.
 * Opportunity cost: The next best alternative forgone when an economic decision is made. (For this article choosing used cars over newer models)

Graph- Supply and Demand Graph on the market of fuel efficient used cars 

Evaluation- In this graph there is a change in demand (D1 to D2) in used fuel efficient cars. For people who want to sell their hy brid, compact or midsize four-cylinder cars, it is a great time to sell because of the increased demand. This is because of the change in income in consumers. Due to the economic recession, people are being paid less and therefore cannot afford new cars. Certain consumers are even keeping their cars for longer. Currently the car companies are cutting down on the supply of their cars, however, it doesn’t really seem to be working, since people are still wanting to buy used cars. One way that retail car companies can compete is if there is a large decrease in price in their cars. However, this will be unrealistic as companies won’t want to stoop down to the prices of used cars, as this could lead them into losses in profit. The only thing these companies can wait for gas prices will be down and production in Japan is up at full capacity(since due to the tsunami, there has been a decrease in factors of production- land, labour and capital). Especially since a majority of car companies are Japanese companies.