posted by jean on .
Engineers at a national research laboratory built a prototype automobile that could be driven 180 miles on a single gallon of unleaded gasoline. They estimated that in mass production the car would cost $40,000 per unit to build. The engineers argued that Congress should force US automakers to build this energy efficient car. Is energy efficient the same thing as economic efficiency? Why? Under what circumstnaces would the energy-efficient automobile described here be economically efficient? If the goal of society is to get the most benefit from its limited resources, then why not ignore economic efficiency and build the energy saving automobile?
Q1 energy efficiency is obviously not the same as economic efficiency. (Gas consumption is not the only factor in which people consider before buying a new car. Further, is energy efficiency worth the price? What is the present value of the energy savings over the expected life of the car.)
Q2 Consider the present value calculation above. Also, energy efficiencies my have positive externalities.