Answer to Question #158344 in Macroeconomics for mia

Question

Assume that the marginal private costs of a firm producing fuel-efficient cars is greater than the marginal social costs. Assume that the marginal private benefits of a firm producing fuel-efficient cars is the same as the marginal social benefits. Discuss one way that the government can try to increase production and sales of fuel efficient cars to the socially desirable amount. Hint the government is trying to affect production through costs, not benefits.

Answer 1

The government should come up with policies on high tax rates for the larger businesses and increased tax rates for the normal business so as to induce costs on production process.