1

Economies of scale-­‐ is when increasing scale of production leads to a lower long run average cost of production . 2

In 1996 the average price for used cars is hitting its maximum values –price index is 130, while at the same time new cars average price index is just less than 100, which is 23 % less than used cars price index. However by 2005 the situation has changed completely and the gap between two graphs has been decreasing . Because new cars graph shows that price index for new cars was slowly increasing over time, in 2005 price index for new cars and used cars is the same-­‐ 100. 3 Demand is the quantity of a good or service consumers are willing and able to buy at a given price in a given period of time. Supply is the quantity of a good or service that a producer is willing and able to supply onto the market at a given price and at a given period of time. The main reason for the falling prices for used cars in 2008 is the decrease in demand .We can see that on the diagram below:

The leftward shift of the demand curve

from D1 to D2 represents the fall in the

demand for used cars. Therefore the

price have