Daily demand and supply: it's a good time to buy a used electric car

From the inbox:

Resale Prices Tumble on Electric Cars
by: Christina Rogers
Feb 27, 2015

TOPICS: Supply and Demand

SUMMARY: With gasoline prices down 33% from a year ago and buyers cooling toward electric vehicles, Nissan dealers worry that weak demand for used electric Leaf cars will put a flood of used models on the market.

CLASSROOM APPLICATION: Students can use supply and demand to examine the effect of lower gasoline prices and federal incentives to purchase new electric vehicles on the demand for new and used plug-in electric vehicles. Instructors can highlight that new and used versions of a vehicle are economic substitutes and that a decrease in the price of one reduces the demand for the other. Another interesting point noted in the article is about the effect of decreased used-car prices on the profits of auto leasing companies. Students can evaluate the relationship between used-car prices and equilibrium lease rates.

QUESTIONS:
1. (Introductory) What factors are driving the decreased demand for used plug-in electric vehicles?

2. (Advanced) How does the sale price of an automobile coming off a lease affect the profit of the company that leased the car? In turn, how do these resale prices affect lease rates?

3. (Advanced) How does the demand for used plug-in vehicles affect the equilibrium prices of new plug-in vehicles?

Reviewed By: James Dearden, Lehigh University