STUDENT ACTIVITY Competition in Action: Comparing Car Prices Competition is key to the market economy. Firms competing with one another cannot charge too much or they will lose customers. The effect

STUDENT ACTIVITY

Competition in Action: Comparing Car Prices

Competition is key to the market economy. Firms competing with one another cannot charge too much or they will lose customers.

The effect of competition can often be seen in the new car market. Choose a car model that interests you. Use print or online sources to find three nearby car dealerships that sell that model. Find out how much each dealer would charge for the model with the features you want. Do not include incentives such as cash back, special financing, or free servicing in the price. Use the table below to show your findings.

Car Model:

Circle the best price. Next, compare any incentives the dealers are offering, such as cash back, free servicing, or cheaper financing. You plan to borrow 90 percent of the cost with a 5-year (60-month) loan at 7 percent interest, unless an incentive provides a better rate.

Calculate the effect of dealer incentives on the total cost. Complete the chart below.

Dealer 1 Name:

Dealer 2 Name:

Dealer 3 Name:

Price

Car Model:

Dealer 1 Name:

Dealer 2 Name:

Dealer 3 Name:

1. Total borrowed

2. Value of incentives

3. Total cost

How much of a difference is there between the highest and lowest prices for the car, excluding incentives?

How much of a difference is there between the prices including incentives?

How would you benefit from competition if you wanted to buy this particular car?

4. Compare your findings with three classmates. (a) How did the features of the cars you were shopping for differ? (b) How much did the prices differ? (c) What made the greater difference: incentives or initial prices? (d) Why do you think that is the case?