Question

1. According to the EPA, CO2 emissions from driving cars are one of the U.S.’s major contributors to pollution and greenhouse gas emissions. Use the models in the book to design an economic policy you think the govt. could use to reduce these CO2 emissions from cars?

Answer 1

There are numerous consumer goods, which are both produced by a country and demanded for by the masses over a period of time. However, countries such as the United States, have slowly and gradually understood a simple fact that these goods and services, may not necessarily be good for the environment and the economy as a whole may suffer.

Green House Emissions caused due to cars is a real problem, and countries are getting involved in the discussions on reducing the same as much as technically possible.

While there are numerous reasons why a country should do so, the economic policies which can be followed to implement the same are as follows: -

1) Increasing Taxes on These Cars: -

The key is to make these cars expensive for the masses, so that the desirability to purchase the same reduces. This could be in the form of increased taxation on these cars which use conventional fuel which is harming the economy and the society at large.

The increase in taxes, is passed on to the end consumer, and as the price of goods and services increases, the consumers shy away from these products and look for other alternatives in the market. As the demand falls the government can thus achieve its intention of reduced cars in the markets.

2) Providing Subsidies to Consumers and Manufacturers of Alternative Vehicles: -

In the United States, the concept of electric vehicles is gaining momentum slowly and gradually over a period of time. Numerous countries have been able to increase the production of electric vehicles and pioneers among them is Tesla. Increasing the subsidies which consumers and producers of these vehicles get by making a purchase, makes it more likely for both to produce as well as consume the same, as a part of their purchase and/or production is covered by the government and prices are lowered than market levels.

This results in a gradual shift of existing players in the market who switch over to electric vehicles seeing the subsidies involved,

Thus, we can conclude by saying, that increasing the taxation on conventional vehicles and increasing subsidies for alternative vehicles would allow for the government to achieve its goals.

Please feel free to ask your doubts in the comments section if any.