How Laziness Makes Me Keep My Used Car
Prices of used cars are rising, and the reason is substitution: in tough times, people substitute away from new cars and toward used cars. The two markets are closely related, so a decrease in demand in the new-car market causes an increase in demand in the used-car market.
I’m sorely tempted to trade in my gorgeous 1999 Honda Civic SI, which has only 64,000 miles on it, for what I think is a great price — thus helping the economy move up along the supply curve of used cars to meet the increased demand.
I could then buy a new Prius: there are no special price premiums today on the Prius, and I would save money on gasoline now and when gas prices spike again. Like most such decisions, in the end it won’t come down to these price considerations, but rather to the transactions costs of making the trade (or in layman’s terms, sheer laziness!). I’d bet that for most people who are fortunate enough to be comfortably well off, transactions costs, not price considerations, are foremost.