10/29/2005

Price linked to car safety. . .

Recently, I read an interesting article concerning some of the most unsafe cars. According to the unsafe cars article, it said that the Insurance Institute for Highway Safety gave poor ratings to econo cars such as the Optima, from Kia, and the Elantra, from Hyandai. The article also noted that although optional in cars, side air bags can dramatically improve the state of safety within a vehicle. After reading this article, there are several economic concepts that come to mind. In a market full of relatively affordable commodities, such as the Optima, and Elantra, people are willing to buy an inperfect product, because the price is right. However, there are also those that are willing to pay a high price for a distinctive quality factor, and in the case of most higher priced cars, that generally equates to higher safety. One class of cars, the economy variety, seems more elastic, if a car increases features, but substantially increases the price, certain buyers are likely to purchase a cheaper car instead. For those that don't put a price on safety, higher priced cars, or safer cars are generally more inelastic, and if the price goes up, but safety features improve substantially, buyers will still keep buying that car. It is amazing to look at the world in terms of what money can buy. If money isn't an object, one can attain nearly anything, from a safer vehicle, better education, or even great healthcare. While some people's quality of life is related to how hard they work, others' is simply a factor of money, whether earned, or inherited, and while even the richest person in the world has "limited resources", it is interesting to see how those resources can improve their life, and available opportunities.

2 comments:

Bob said...

Elastic, inelastic, what is all this mumbo jumbo? Those words sound familiar, but I can't recall what they mean. I'm just kidding Professor Tufte! I think you're right Morgan, people are more likely to focus on price rather than the safety features of the car. I can't say that I bought my big Ford truck because I thought it would be more safe than driving a little Kia Optima, but I did consider factors other than price and fuel efficiency when I bought my truck. I would rather pay $300 for a high-end kitchen appliance and have it for life rather than paying $30 every six months, but that's just me.

Dr. Tufte said...

-1 on Morgan's post for a spelling error.

Other than that I thought this was really insightful.

Jokes aside, Bob, part of the problem with economics is that we throw out an idea like elasticity as if it came from some higher authority, when in reality they were invented to address ideas precisely like this.