Multiple Choice
Which of the following is a potential advantage of using nonrenewable resources over renewable resources in addressing externalities?
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following is a certain way for the government to encourage the development of hybrid and electric vehicles?
A
Imposing higher tariffs on imported oil
B
Reducing fuel efficiency standards for gasoline vehicles
C
Providing subsidies or tax credits to manufacturers and consumers of hybrid and electric vehicles
D
Eliminating all government involvement in the automobile market
Verified step by step guidance1
Understand the goal: The government wants to encourage the development of hybrid and electric vehicles, which means promoting their production and consumption.
Analyze each option in terms of economic incentives:
- Imposing higher tariffs on imported oil increases oil prices but does not directly incentivize hybrid or electric vehicle development.
- Reducing fuel efficiency standards for gasoline vehicles lowers the cost of traditional vehicles, which may discourage hybrid and electric vehicle adoption.
- Providing subsidies or tax credits to manufacturers and consumers lowers the effective cost of hybrid and electric vehicles, directly encouraging their development and purchase.
- Eliminating all government involvement removes any incentives or regulations that could promote hybrid and electric vehicles.
Recall the concept of subsidies and tax credits: These are financial incentives that reduce costs for producers or consumers, making the targeted goods more attractive and increasing their market demand and supply.
Conclude that the most direct and certain way to encourage hybrid and electric vehicles is through subsidies or tax credits, as they create a positive economic incentive aligned with the government’s goal.
Therefore, identify the correct answer as the option involving providing subsidies or tax credits to manufacturers and consumers of hybrid and electric vehicles.
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