Author Question: Some people will often remark that the used car market is a counter-cyclical business,meaning that ... (Read 36 times)

folubunmi · **on:** Jun 29, 2018

Some people will often remark that the used car market is a counter-cyclical business,meaning that the fortunes of the business tend to move in the opposite direction of the health of the economy.

Why might this be true and what conclusion can you make about what kind of a good used cars would be classified as economically speaking?

Question 2

Any two of these events in questions 1 and 2 occur together? (Draw the diagrams)

What will be an ideal response?

DylanD1323 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

What they probably mean is that when the economy is moving into a recession people tend to move away from the purchase of new cars and will purchase more used cars instead. Likewise, during an economic boom or expansion customers now have more income and are more motivated to purchase new cars and substitute away from used cars. Essentially the conclusion you can make is that used cars are considered to be an inferior good.

Answer to Question 2

There are six combinations:
(1) If the price of a PC falls and the price of an MP3 download rises, demand decreases, supply is unchanged, so the price falls and the quantity decreases.
(2) If the price of a PC falls and more firms produce MP3 players, demand decreases and supply increases so the price falls and the quantity might increase, decrease, or not change.
(3) If the price of PC falls and the wages paid electronic workers rise, demand decreases and supply decreases so the quantity decreases and the price might rise, fall, or not change.
(4) If the price of an MP3 download rises and more firms produce MP3 players, demand decreases and supply increases so the price falls and quantity might increase or decrease or remain the same.
(5) If the price of an MP3 download falls and the wages paid electronic workers rise, demand decreases and supply decreases so the quantity decreases and the price might rise or fall or remain the same.
(6) If more firms produce MP3 players and the wages paid electronics workers rise, supply might increase or decrease or remain unchanged, demand is unchanged, so the outcome cannot be predicted.