Depreciating lemons and peaches

The prices of used cars are falling faster than ever before.

The rate of depreciation of used cars is fastest for bigger cars including 4 x 4s and large family cars many of which are now exposed to higher car duties. This BBC news audio-video report is good as a stimulus for teaching about the fixed and variable costs of car ownership and for a discussion about why prices of cars depreciate so rapidly. And whilst on the same subject, here is Tim Harford on the market for lemons - great to use when teaching asymmetric information. I have attached a chart I use showing an index of new and second hand car prices in the UK. I ask students why it is that there has been such sustained price deflation in the prices of used cars? And why price inflation for new cars too remains remarkably low?

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