1 (c)
Possible answers include
• interest rate increases cause higher mortgage payments so households have less disposable
income
• price of new cars has gone down.
This causes people to buy more new cars, putting more old
cars on the market increasing the supply of used cars and lowering the price
• more attractive to save money so demand for second hand cars falls
• cost of running a car goes up (eg fuel, insurance) so less people want to own cars
• price of new cars fall eg increased competition, reducing value of second hand cars.
• Improvements in technology/reductions in production costs
• strengthening of the economy (and increasing demand for new cars)
NB: Assume in context unless the answer is discussing alternative unrelated markets
NB: Do not allow depreciation or ‘wear and tear’ as an argument
Example
The price of new cars has fallen (L1) this means that people will now be able to afford to buy a new
car rather than a second hand one (L2 – 2). The price of used cars will fall because there are less
people wanting to buy these used cars (L2 – 3)
