Blog
Depreciating lemons and peaches
13th March 2008
The prices of used cars are falling faster than ever before.
The rate of depreciation of used cars is fastest for bigger cars including 4 x 4s and large family cars many of which are now exposed to higher car duties. This BBC news audio-video report is good as a stimulus for teaching about the fixed and variable costs of car ownership and for a discussion about why prices of cars depreciate so rapidly. And whilst on the same subject, here is Tim Harford on the market for lemons - great to use when teaching asymmetric information. I have attached a chart I use showing an index of new and second hand car prices in the UK. I ask students why it is that there has been such sustained price deflation in the prices of used cars? And why price inflation for new cars too remains remarkably low?
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.