Here is a good example of government intervention through regulation

“Under the proposed new standards, manufacturers must reach an average of 39 miles per gallon for passenger cars by 2016, and 30 miles per gallon for light lorries…The increase in mileage is to be introduced gradually, and is expected to add $1,300 to the cost of a vehicle by the time it is fully implemented in 2016.”

In a similar vein, the EU has progressively cut the maximum Co2 emissions per km for all passenger cars.

1. Think about how this type of regulation will affect producers both in the short and the long term.
2. How will this affect consumers? Is it (a) effective (b) does it promote efficiency? (c) Is it equitable?
3. What are some of the possible macroeconomic effects of such an intervention?

Regulation is an alternative to taxation and/or subsidy ... or should we regard it as a complement? Part of a mix of policies needed to address environmental issues and targets?