Question

Suppose the federal government is considering requiring all new trucks to meet a new higher efficiency standard of 50 miles per gallon. Give an example of a cost and a benefit that might arise from this policy change.

Answer 1

If the federal government imposes new higher efficiency standard of 50 miles per gallon on all new trucks, then there will be cost for the truck manufacturing industry, but the benefit of the policy measure will be felt across the economy.

The truck manufacturing industry will have to either invest more money into new technology that can improve the efficiency of the existing engines, or the industry will have to develop a new type of engine that can deliver the higher efficiency as stipulated by the government.

On the other hand, the reduction in transportation cost due to the higher fuel efficiency of new trucks will benefit the overall economy. In other words, the cost will decline in all the other sectors of the economy. This will either translate into reduced prices of final goods and services of other sectors, which will eventually benefit the consumers at large. In addition to this, the higher fuel efficiency will also benefit the environment which is under threat from fossil fuel burning.

So, at the outset, the policy of stipulating higher fuel efficiency for new trucks is likely to have benefits that outweigh the cost of carrying out technological improvement.