Quote:
Originally Posted by WolfpackS2k
Seriously, why do people continually say this? You CANNOT compare car costs that way. It doesn't work, and it is not a logical argument. Do you also talk about how your Pentium 4 computer from 1994 would cost $10,000 in today's money?  |
If you bought a Pentium 4 in 1994 for say $1200. It is as if you paid $1,750 for it with today's money assuming 2% inflation or interest p.a. Of course, this does not mean it is worth $1,750 today because you would have used it and it would have become technologically obsolete. But if you didn't buy the P4 in 1994 and put the money in the bank instead and assuming compounding interest of 2%, you would today have $1,750 to buy a top notch computer which is not comparable to the P4 in absolute terms but comparable in relative terms, as the P4 was the top notch computer in 1994.
Now lets get back to cars. Sports car A costs $40,000 today. Sports car B is similar in features and performance but was discontinued 10 years ago. The price of car B (when new) 10 years ago was $38,000. Which car is more expensive? Assuming 2% interest p.a., car B costs $46,300 in today's money. If instead of buying car B 10 years ago you saved the $38,000 at 2% p.a., today you would have enough money to buy car A at $40,000 + $6,300 to spend on mods.
Of course, you have to make some assumptions about interest rates but that is the nature of financial modeling.
[ame="http://en.wikipedia.org/wiki/Time_value_of_money"]Time value of money - Wikipedia, the free encyclopedia[/ame]