ECO260: Introduction to Microeconomics
M1A1: Short Paper
There are several factors which are affecting the price of new and used vehicles since the current recession began. Because people have been forced to hang on to their cars longer it has driven up the price of used cars because the pool of used cars has gotten smaller. New car sales have were down as well further pushing up the price of used vehicles since fewer people bought new cars during the recession. Fewer new car purchases equals less used cars. The production of new cars has also been cut meaning that there are less new cars in circulation which in turn means fewer used cars from sources like car rental places. The higher price of used cars has pushed some people to look for deals on new cars but dealer incentives have been reduced making the purchase of a new car less enticing then it would have been in the past. Because there are less new cars being produced, the price of new cars has also gone up. The high cost of gasoline has also affected the demand of new and used cars. As gas prices go up the demand for new cars goes down as people do not wish to spend as much money on their cars. So rather than make a high monthly car payment on a new vehicle they choose a lower payment on a used car or may chose to purchase the car outright.
Why used-car prices are going to stay high for years:
Used-Car Prices Climb
As Gas Prices Go, So Go Prices for Used Cars