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    Economic efficiency

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    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.

    a) Is energy efficiency the same thing as economic efficiency?
    b) Under what circumstances would the energy efficient automobile described here be economically efficient?
    c). 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?

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    a) Economic efficiency occurs when total surplus (consumer plus producer surpluses) are maximized. This occurs when the lowest cost producer makes the good and the consumers who place the highest value on the good purchase it. One thing to consider when determining consumer and producer surpluses is that "cost" includes all opportunity costs, not just monetary costs. Energy efficiency is NOT the equivalent of economic efficiency. Energy ...

    Solution Summary

    Economic efficiency is thoroughly examined in this solution.