The markets for new cars and for used cars are related. As new car sales increase, the available supply of used cars (trade-ins) increases. This tends to decrease the price of used cars. As the prices of used cars decline, typically the demand for new cars also declines.
(a) Does this analysis suggest that new cars and used cars are complementary or competitive products? Explain.
(b) Suppose a large automobile dealership has the following monthly market demand and supply functions for its new and used cars.

(i) Solve each demand equation for the quantity in terms of the prices for new cars and used cars.
(ii) Calculate the necessary partial derivatives to confirm or refute your answer in part (a).

Transcribed Image Text:

Demand for New Cars: = 78,000 – 304NEW + 2p. + 2Pushd PNEw USED Supply of New Cars: PNEW = 20,000 + 109NEW Demand for Used Cars: + 0.05p, PUSHD = 3000 – 49USHD + 0.05p,EW Supply of Used Cars: PuD = 2000 + quseD P.. USED