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The CAFE standard

Discussion Questions:
1. Why did Congress pass the CAFE standard?
2. Does your answer to question 1 imply either that consumers do not know what is in their own best interest or that firms will not voluntarily provide the goods (including fuel economy) consumers want to purchase?
3. Suppose that Congress really knows what the best average fuel economy for automobiles is. How do you think "best" is (or should be) defined? Do the costs and benefits of achieving a particular level of fuel economy play a role in determining that definition?
4. If Congress wanted to increase the average fuel economy of cars and light trucks, could it accomplish this by imposing a tax on gasoline? What are the advantages and disadvantages of using taxes rather than standards (such as CAFE) to achieve an improvement in fuel economy?

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1. Why did Congress pass the CAFE standard?

CAFE standards were meant to help prevent an impending energy crisis. It was predicted that gasoline would become increasingly scarce, and that oil should be conserved for truly necessary purposes. Since driving in a fuel efficient car gets people from place to place just as well as driving gas guzzlers, these standards seemed like a logic move at the time.

2. Does your answer to question 1 imply either that consumers do not know what is in their own best interest or that firms will not voluntarily provide the goods (including fuel economy) consumers want to purchase?

In the short run consumers do not always make the best decisions. They will ...

Solution Summary

Questions related to the implementation of the CAFE standard and alternative measures to reduce gasoline usage.

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