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:

Price Discrimination

The practice of selling the same product to different buyers at different prices, based on factors other than cost.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a good or service and the actual amount they pay.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual amount they receive by selling it at the market price.

Direct Price Discrimination

The practice of charging different prices to different consumers for the same product or service, based on the buyer's willingness to pay.