Question

The Trump Administration has repealed nearly 100 environmental rules over the past three years. One example is the recent weakening of emissions standards for cars and trucks. The Administration has argued that these changes will help the auto industry flourish.

Question: Do you think that the free market equilibrium quantity of cars and trucks is efficient? Explain.

Answer 1

No, the free market equilibrium quantity of cars and trucks is not efficient because a free market without any govt control would lead to more production/use of cars and trucks . It will cause more emissions and consequently will lead to Negative extermnality for the society. Negative externality refers to the cost borne by the third party (i.e. society here) due to the parties involved in manufacturing of cars and trucks.

Since there have been rising concerns towards environmental pollution and damage , this move of free market could impose a heavy cost on the population in the long run . This is so because free market equilibrium if qty and cars would lead to over-production(due to negative externality) and would pose a threat to the environment well being.

Sustainable Development is the need of the hour given the alarming environmental changes . For this there ought to be some control by govt on the emissions by company . A free equilibrium in auto industry would mean a higher Marginal social cost and lower Marginal Pvt Cost. The companies will determine equilibrium at their Marginal individual cost curves ignoring the cost borne by society which poses a threat of over provision of D-merit goods(cars,trucks etc) .

Note-: D-merit good is a good whose consumption is considered to produce socially undesirable effects or degrading effects for society.