Question

Use graphs to illustrate the difference between a fuel tax and CAFE standard on the marginal cost (to the consumer) per mile driven.

Use what you know about elasticity to discuss why a fuel tax would need to be very high in order to bring about a substantial reduction in miles driven.

Use what you know about supply and demand to discuss why fuel efficiency standards might actually result in more miles driven.

Answer 1

CAFE refers to corporate average fuel economy standards. These do not directly offer incentive to the customers for choosing the fuel efficient vehicles which do not affect the fuel prices directly. Goals are indirectly accomplished by making it further expensive for the automakers to create inefficient vehicles by introduction of penalties. Original CAFE standards aimed to drive the automotive innovation for curtailment of consumption of fuel and creation of domestic job along with reducing of global warming. A fuel tax is referred to as an excise tax which is imposed on the fuel sale. Fuel tax is mostly imposed on fuel which are intended for the transportation.fuels are also used for powering the agricultural vehicles also for home heating oil.

increased fuel that was will lead to more expenses for the consumer for purchasing of fuel. Prices of fuel being higher. Hence demand for fuel will lower to a certain extent. Therefore a Fuel tax is needed to bring about a substantial reduction in miles driven.
The fuel consumption or demand of fueldepends widely on the engine along with the type of fuel that is being usedand the efficiency with which the engine is giving its output and transmitting it to the wheels.