Incentives and Purchasing Behavior: An Analysis of Hybrid Car Subsidies 2002-2007 - Essay Sample

Paper Type:  Essay
Pages:  8
Wordcount:  1926 Words
Date:  2023-02-08


In a review of the question: "How do people respond to incentives? "Incentives refer to something that causes a person to act accordingly. The average individual makes decisions by comparing cost and benefit. Therefore, the encouragement given to everyone to buy hybrid cars, which is more fuel-efficient but more expensive than gas-powered vehicles were documented from 2002 to 2007. The incentive was given in the form of subsidy, which affects the purchasing behavior of the individual toward the hybrid car. In the example, the federal government is giving every household who owns a hybrid $3400 per vehicle, which roughly increases 1/5th of the hybrid vehicles purchases (Bjerkan,Norbech & Nordtomme, 2016). During this time, the price of gasoline increased significantly, and the higher price of gasoline causes a reduction in the demand for gasoline vehicle and increase the need for the hybrid vehicle.

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It is clear that the incentive is to encourage a hybrid car. Hybrid electric vehicles combine the benefits of gasoline engines and electric motors. They can be designed to meet different goals, such as a better fuel economy or more power. Most hybrids use several advanced technologies such as regenerative braking, electric motor drive, and automatic start and stop.

Regenerative braking recaptures energy usually lost during coasting or braking. It utilizes the motion of the wheels to turn the motor. This technology will generate electricity and help slow the vehicle. The Electric motor drive will provide power to assist the engine in accelerating, passing or hill climbing. This will allow a smaller, more efficient engine to be used. In some of the hybrids, the electric motor alone propels the vehicles at low speeds, where gasoline engines are least efficient. The automatic start and stop will automatically shut off the engine when the car comes to a halt and restarts when the accelerator is pressed, which will reduce CO2.

The federal government goal is to control the emission of CO2 at a lower cost. According to the Road to Paris: The International Climate Agenda and Implications for Domestic Environmental Policy. The goal of the hearing was to examine the many ways in which the US can achieve its commitment to reduce emissions 26 to 28 percent below the 2005 levels by 2025(Bjerkan,Norbech & Nordtomme, 2016). The country can not only meet its 2025 climate goals-doing so will create economic and quality-of-life benefits.

First, economic growth can go hand in hand with efforts to reduce greenhouse gas emissions. We can achieve a low-carbon future by harnessing critical drivers of economic growth-including more efficient use of energy and natural resources, smart infrastructure investments, and technological innovation. Our efforts to address conventional air and water pollution have often relied on end-of-smokestack or end-of-pipe controls. However, in the case of carbon pollution, the solutions typically lie in improved efficiency in energy use, cleaner fuels, and new technologies and processes -solutions that often create net economic benefits. By strengthening fuel economy standards, drivers will financially save more money.

The level of fuel economy and emission of CO2 that gasoline vehicle produce shows a clear reflection of efficiency when it comes to internal combustion engines. It is clear that for other engines, it is only 15% of the consumed fuel that is utilized in propulsion (Bjerkan,Norbech & Nordtomme, 2016). The rest is just lost because of the inefficiencies associated with these engines. However, the hybrid vehicles, the power from gasoline engines and electric motors are combined for efficiency. In this case, the energy that would have been wasted by typical automobile operations is harnessed by the rechargeable battery.

Because of the benefits emanated from the hybrid vehicles, the US federal government has tried to boost the market for these vehicles. Beginning the year 2005, the government offered tax credits to offset their purchase. More so, many federal incentives are now available for hybrid cars. These incentives range from $2500 to $7500.These incentives have made hybrid vehicles not only affordable but also attractive to the buyers.

Various states have now started offering their income tax credits for the purchases of hybrid cars. More so, there are also federal tax credits covering up to 50% cost of the plug-in-hybrid charger. There are also cities within the U.S allowing for free parking for hybrid cars in the municipal lots. Insurance companies also need to offer incentives for the owners of hybrid vehicles. An example would be a 10% discount for hybrid owners, which would become an additional saving.

Don't Forget the Costs of Time and Invested Funds

Is it better to work for someone else or be a business owner? Why? The use of time and money sacrifices the opportunity to utilize the resources in other ways. The value one is giving up when making a decision is referred to as opportunity cost. Any time a person invest time energy or resources, it is clear that he/she is choosing not to invest in something else.

We sacrifice the opportunity to trade our time for the money we could be earning through working for someone else, as well as the interest we could have made by investing the money into our own business. Even though we don't write a check for these costs, they are essential costs for decision making. As a result, revenues must not only cover the exact costs of doing business; they must also replace the implicit values of the owner's time and the invested funds for the company to be profitable (Tyson, 2017). In reflection of the case is it better to run a lawn-cutting business that uses solar power equipment that you could sale tomorrow for $5000 or work or as a janitor for $300.00 a week. The better option is to run the business which creates an opportunity cost here by using the equipment that could have been sold. Thus, the interest could have been quickly earned on the amount saved. As a business owner, you are sacrificing another cost element, which is the amount that could have been received by him working as a janitor. In the case mentioned, the $5000 they got after selling the equipment could be invested to earn $10 a week and the boy could work as a janitor earning $300 a week. This all makes the opportunity cost of running the lawn cutting business as $310 a week.

Also, let's say a person decides to quit a job paying $40,000 per year and start a business. Coming up with a company has its costs as well as the cost of losing the $40,000 the person would have made if he/she stayed in the job. When making a decision, there is something else that one has to give up. The opportunity cost is always necessary because there are alternative options all the time. Still, in the topic of opportunity cost, I happened to come across a discussion regarding the comparison between getting employed and becoming an entrepreneur. According to my friend's point of view, the opportunity cost of becoming an entrepreneur is the sum of salary he would have earned for that duration in the job. By being an entrepreneur would entail that he would recover the amount he would have received as an employee (Tyson, 2017).One can argue that whereas the job is more like mathematics, entrepreneurship is like arts. It is difficult to determine how much an individual can make in entrepreneurship compared to getting a stable job where one is guaranteed of a payment every month. Entrepreneurship, as an opportunity cost of getting employed, is a different career which is quite tricky. It contains its great rewards as long as an individual is patient enough. Whereas one can be laid off in job, firing an entrepreneur is difficult. However, a business owner is prone to monetary losses, which may even result in the closure of the business.

Law of Demand and Cigarettes

A cigarette is an item of addiction. When people start smoking, they become addicted to nicotine and are willing to pay any price for cigarettes. Therefore, cigarettes do not follow the law of demand. If the price increases, the customers due to its addiction, the market doesn't come down, and customers keep purchasing at the same rate. The law of demand says that more product will be bought when the price decreases. The demand for cigarettes is based upon many of the determinants. They include the price of the cigarettes, the ability of the consumer to buy them, or the purchasing power of the consumers, market segmentation based upon the age group of the consumers.

The consumption of the products is based upon the price of the product. The lower the price, the more the demand will be. Another determinant is the market segmentation of the consumer based on the age group. In today's environment, our youth are more prone to the habit of smoking. They are not worried about the price of cigarettes, but with more about their status symbol and a variation in the amount does not affect the demand for the product.

It is hard to stop smoking habit as the content is so addictive. That feature makes the demand for cigarettes so inelastic in nature. A significant price change for cigarettes would induce a minimal change in the quantity demanded. Only substantial price decreases on decreases would affect demand for cigarettes as it is inelastic when it comes to price changes (Mukong & Tingum, 2019). Education and social factors become significant determinants for smoking habits. For those already smoking, the number of cigarettes smoked is not highly dependent on the prices of cigarettes.

There are, however, cases when government intervenes by imposing more taxes on cigarettes. In case a tax is either increased or imposed, the burden falls on either consumers or producers. The consumer or producer, in this case, cannot the go-to substitute. The consumers cannot find any substitute product that can become more attractive compared to the newly taxed cigarette. On the side of producers, the resources previously used for the production of cigarettes cannot easily be used for making something else.

There have been inconsistent findings of the way the demand for cigarettes changes with consumers' income. In most cases, change in income has either a negative or insignificant effect on the market for cigarettes. The price of cigarettes has gone up in some countries because of taxes. The fact that the product is inelastic to price changes makes it earn good revenues for the government. For instance, in the USA, the cigarette is taxed by the two levels of government.

The time factor also has had a significant influence on the demand for cigarettes. For instance, in case a packet of a cigarette is sold at $1, the smoker will continue buying the product because there are no available substitutes. The inelastic demand for the product will lead to this continuity (Mukong & Tingum, 2019). However, if the consumer finds that he /she cannot continue to afford cigarettes with the increased price, he or she is likely to quit in the long run. That means now that the demand for cigarettes becomes elastic in the long term and not in the short field.

If price change does not entirely affect the quantity demanded of a product, then, if the absolute value of the elasticity of demand is less than 1, the demand becomes inelastic at that particular point. In such circumstances, the tobacco industry manager does not have to worry about the tax imposition. From the theoretical standpoint, the variation in consumer demand for cigarettes concerning consuming income becomes ambiguous.

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