What is the likely effect on the price and quantity sold on the second hand cars in the event of a massive investment in public transport?

Expert Answers
pohnpei397 eNotes educator| Certified Educator

If the government puts a great deal of money into public transportation, the price of used cars will go down, as will the number of such cars that are sold.  This is because the increased investment will cause a decline in the demand for used cars.

One of the major nonprice determinants of demand is the availability and the price of competing goods.  Clearly, mass transit is a competing good with respect to used cars.  If public transit expands, people might not need cars as much because they will be able to get to more places by public transit.  Therefore, the demand for used cars will go down.

When demand goes down, it is represented on a supply and demand graph by a movement of the demand curve to the left.   When the demand curve moves to the left (all else being equal) a new equilibrium is created.  The new equilibrium is at a lower price, but it is also at a lower quantity.  This makes sense because people do not want the used cars as much anymore.

So, a massive investment in public transit will reduce the demand for used cars, driving down their price and the quantity of them that is sold.