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?

Question

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?

Answer 1

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.

Answer 2

Energy efficiency and economic efficiency are not the same thing. Energy efficiency refers to how effectively energy is used in a system, while economic efficiency refers to how effectively resources are allocated to maximize overall economic welfare.

In the case of the energy-efficient car described, it may not necessarily be economically efficient. The engineers estimated that it would cost $40,000 per unit to build. The economic efficiency of the car would depend on factors such as market demand, consumer preferences, and the cost of alternative options. If consumers value energy efficiency highly and are willing to pay a significant premium for it, then the car might be economically efficient. However, if consumers do not see enough value in energy efficiency to justify the high cost, it might not be economically efficient.

If the goal of society is to get the most benefit from its limited resources, ignoring economic efficiency and solely focusing on energy savings might not be the most efficient approach. Economic efficiency takes into account overall welfare and allocates resources in a way that maximizes the benefits society receives from those resources. This includes considering factors such as costs, consumer preferences, and alternative uses of resources. Ignoring economic efficiency could lead to misallocation of resources, where the costs outweigh the benefits, resulting in lower overall welfare for society.

Therefore, it is important to consider both energy efficiency and economic efficiency when making decisions about resource allocation, especially in the case of a large-scale production like automobiles, in order to maximize the benefits society receives from its limited resources.