In a tight market, big demand for used cars drives up prices

http://www.boston.com/business/articles/2009/06/05/demand_for_used_cars_jumps_dealers_
confront_shortage/


Summary
  As the economy is still slowly recovering from the recession, many consumers tend to spend less on luxury products like cars. Used cars, instead of new cars, become more appealing to many consumers. This leads to a high demand of limited supply of used cars, which drives up the prices of them. In May, Americans purchased around 4 million used cars, which is a rise of 23 percent over April. Car dealers are facing a shortage of used cars because of several factors: fewer consumers are trading in their old cars for new cars; the number of repossession is decreasing; and car rental companies are holding onto their cars for a longer period of time.  Many owners of dealership that will be closed by GM and Chrysler are planning to open their own used car dealerships, which would increase the competition in the auto market and potentially boost up the prices further more.


Connection
  The high demands of used cars are due to the change in price of its substitute products, which are new cars. New cars are elastic products and consumers react strongly to them. When the cost of new cars take up a huge percentage of the consumer's budgets, consumers are more likely to purchased used cars. In the opposite hand, used cars are decreasing in supply. As more and more consumers purchase used cars, fewer amounts of used cars will be available in the market. And this leads to higher prices of used cars. Overall, the increase in demand of used cars results an increase prices and increase quantity exchanged, which means you can get more with more money.


Reflection
  In my opinion, car prices will still be staying around the same level in the next few years. However, as the prices of gasoline, which is a complimentary product of cars, keep increasing, it will eventually cause a decrease in demand of cars. Since not everyone can afford a car, I think that some car dealers should lower the prices of their cars. The reason for that is many cars do not really worth that much, and car dealers are just hoping to make a huge profit from them. If I want to purchase a car, I would buy a used car instead of a new car because they are cheaper and have a lower depreciation. I think car dealers should decrease the prices of their new cars because cars are elastic products. If car dealers do decrease their prices, they can get more revenues in exchange.