Jeopardy and the inflation adjusted price of a 1908 Ford Model T

For Final Jeopardy yesterday, the category was "Business Milestones." The clue was 

These were first sold in 1908, at a price equivalent to about $27,000 today

The correct question was "What was the Model T." But none of the three contestants got it. This link from The Jeopardy Archive, Show #8786 - Monday, January 16, 2023, has all the clues.

I wondered how they came up with the $27,000 figure because the Consumer Price Index seems to start in 1913. See Consumer Price Index Data from 1913 to Present.

This October 2021 article, The 1st Affordable Automobile: 1926 Ford Model TT, from Car Donation Wizard says:

"In 1908 the Model T cost $850, or around $24,835 in today’s dollars when adjusted for inflation. In 1916, the prices had dropped to only $360 for the most basic Model T, or around $9,059 in today’s dollars. In 2012, the least expensive new car was $10,990. Henry Ford still has us beat."

Given that we had high inflation in 2022 (the CPI was up 6.5%), that $24,835 is in the ball park of what Jeopardy had. This aricle, 2022 Ford Maverick’s $21,490 Base Price Is Less Than Original Ford Model T When Inflation Is Taken Into Account, by Jimmy Dinsmore of Torque News gives a similar figure.

But there is a site that has inflation rates going back to the year 1800. See Value of $1 from 1800 to 2023 from Official Data Foundation. The author is Ian Webster. It lists the Bureau of Labor Statistics as its source. The Federal Reserve Bank of Minneapolis seems to have similar data. See Consumer Price Index, 1800-.

That site shows that what cost $1 in 1800 only cost $0.73 in 1908.  In 2022 it was up to $23.23. That means what cost $0.73 in 1908 costs $23.23 today. If we divided 23.23 by 0.73 we get 31.82, meaning that a good costs 31.82 times as much in 2022 as it did in 1908. If we multiply that by 850 we get 27,048, just about what Jeopardy says it was. Using the Minneapolis Fed site's data would also get us a current price in the $27,000 range.

This site, Ford Model T Original Prices, from FordModelT.net run by Mitchell Taylor shows all the prices of the different body styles for the Model T from 1909 to 1927 (as well as drawings of some them).

The cheapest in 1909 was the Runabout with a price of $825. The price generally kept falling and by 1925 a buyer only paid $260. That is a drop of about 68%.

But, adjusting for inflation, what would you have to pay in 1925 for something that cost $825 in 1909? Prices were 93% higher in 1925 than in 1909. So if the price of the Runabout had just kept up with inflation, it would have been $1,592 in 1925. Yet it was only $260. That means the price actually fell about 84%, adjusted for inflation.

Part of the reason for the fall in price is "economies of scale."

Economies of Scale (Increasing Returns to Scale) = A situation in which long-run average total cost declines as the firm increases its level of output. The percentage increase in Q is greater than the percentage increase in TC.

Suppose a company like Ford makes and sells only 1 car a year. Then the average cost of making a car will be very high. But if they make thousands of cars a year, the high cost of building and maintaining the plant or factory is spread over all those cars and they can sell the car at a reasonably low price.

See Economic Scene; The technology sector's rise and fall is a tale as American as the Model T by economist Hal R. Varian. He is Chief Economist at Google.