Cars Are Lasting Longer

question 156

Essay

Cars are lasting longer.The expected number of miles traveled over a vehicle's life has risen to 180,000 miles in 2001 from 128,000 in 1977.Using supply and demand,predict how the increased longevity of cars will affect the price and quantity of new cars sold in the US.[HINT: Plot the shifts in yearly demand and supply for new cars in the US; an increase in longevity means that the supply of used cars increases.Since used cars are a substitute for new cars,show what happens to the demand for new cars.]

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Definitions:

Double-Declining-Balance

An accelerated method of depreciation which doubles the rate at which an asset’s book value depreciates compared to traditional straight-line depreciation, resulting in larger deductions in the early years of an asset’s life.

Market Rate

The prevailing interest rate available in the open market, often influencing or benchmarking loan and savings rates.

Contract Rate

Contract rate refers to the agreed-upon price or interest rate specified within a contract, often related to loans or financial agreements.

Premium

The additional cost above the normal or nominal amount, usually associated with insurance premiums, bond market pricing, or superior products and services.