In the 1990 Clean Air Act Amendments, Congress and the EPA rely on the automobile industry to develop a cleaner automobile. At the same time, the government imposes a relatively minor federal tax on gasoline.
a. Do you see any problem with the implicit signals the federal government is sending to American auto manufacturers and to American car drivers through these policies? Briefly discuss.
b. Formulate a hypothetical economic policy to motivate automobile manufacturers to advance the technology of cleaner motor vehicles.