Question

In the 1990 Clean Air Act Amendments, Congress and the EPA rely on the automobile industry to develop a cleaner automobile. At the same time, the government imposes a relatively minor federal tax on gasoline. a. Do you see any problem with the implicit signals the federal government is sending to American auto manufacturers and to American car drivers through these policies? Briefly discuss. b. Formulate a hypothetical economic policy to motivate automobile manufacturers to advance the technology of cleaner motor vehicles.

Answer 1

Ans) The government through these policies is trying to curb the increasing fuel emissions by ensuring that both the automobile as well as the petroleum industry is tied to effective policies to secure efficient outcomes. It is necessary to safeguard the environment, as global warming is increasing and both the industries are playing part in it, thus increasing taxes on gasoline will discourage a great number of people from making regular and unnecessary use of it. Ofcourse people who can afford it will still be making use of it, but this will surely send out a message to all that the government is aiming at encouraging people to cut down on unnecessary use of both. Both of then go hand in hand, taxation on gasoline will decrease usage of it, and may also decrease the sales and encourage automakers to develop new and efficient technologies for the betterment of environment and society.

A mixed policy is required to ensure that all interests are safeguarded, and that no industry or even the consumers are discouraged to such an extent that they loose interest which shall hamper several important aspects such as decrease productivity, decrease demand, hamper employment thus have an impact on wages and sales thus decrease revenue for private and public entities. Hence an economic policy for this has to nurture all interests along with ensuring that environment is safeguarded.

Thus, accordingly taxes should be increased and decreased. Penalties should be imposed if older technologies hampering the environment are brought in use. A clause should be mentioned wherein a separate development center to test new and efficient technologies be made.