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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

The federal 3mm decides to require that automobile manufacturers install new anti-pollution equipment that costs Chapter 5, Problem 5SCQ, The federal 3mm decides to require that automobile manufacturers install new anti-pollution per car. Under what conditions can carmakers pass almost all of this cost along to car buyers? Under what conditions can carmakers pass very little of this cost along to car buyers?

To determine

The government has decided that every manufacturer must install anti-pollution equipment that costs $2,000 per car. Mention the conditions in which car manufacturer can pass all the cost to their buyers and under which circumstances they can pass little of this cost to buyers.

Explanation

The installation of anti-pollution devices would increase the cost of production for manufactures. There are two situations under which they can pass almost all or very little of their cost to the buyers. These are as follows:

(a) When demand for cars is inelastic: It means that a change (rise) in price of cars would not change (decrease) the quantity demanded for cars. In this case, the manufacturer can pass the cost of installing anti-pollution devices to buyers and it would not affect the quantity demand for cars...

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