Tuesday, October 30, 2012

Who could have predicted ...

... That car prices would rise?  The photo is from the USA today ..

Well, this is actually a good question for discussing economics.   When Cash for Clunkers destroyed perfectly good used cars, the supply of used cars decreased, causing an increase in prices for used cars.  

Then, when we have higher prices for used cars - which are a substitute for new cars - this would cause demand for new cars to go up (which causes higher prices for new cars).  This may not be the only cause of higher prices for new cars  - perhaps Japan's lack of production with the tsunami decreased supply as well - but it should be one of them.

I should use this for an exam question ... Will have to work hard to disguise my disgust for the law that helped cause this, however.

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