Japan+Car+Sales+Jump+on+Subsidies+for+Green+Vehicles+by+mengxin

=TITLE OF EXTRACT:= Japan Car Sales Jump on Subsidies for Green Vehicles

=SOURCE:= http://www.bbc.co.uk/news/business-17216825

=DATE EXTRACT WAS WRITTEN:= March 1st, 2012

=DATE CURRENT EVENT WAS WRITTEN:= March 6th, 2012

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= The quantity consumed of Japanese cars increased this year, which means the market equilibrium was shifted. This was due to the subsidy the government gave for energy-efficient vehicles. The government is giving a subsidy of up to 100,000 yen ($1,245) per eco-friendly car for a total of 300 billion yen. As seen in figure 1, the government gives subsidies, the supply curve shifts down, which lowers the price of the products to consumers, so consumption increases. The Japanese carmakers had a tough year last year due to the earthquake and tsunami in Japan, and floods in Thailand. This affected the factor of production of cars, which decreased the maximum number of products the companies can make. According to figure 2, the PPC shows the maximum number of products the supplier can make, and the PPC decreases significantly after the natural disasters in Japan and Thailand.

=VOCABULARY TERMS AND DEFINITIONS:= - market equilibrium – where supply curve meets demand curve - subsidy – money paid by the government to a firm per unit of output - factors of production – four resources that allow an economy to produce its output: land, labor, capital, entrepreneurship - PPC – Production Possibilities Cruves – shows maximum combinations of goods and services that can be produced by an economy in a given time if all resources in the economy are being used fully and efficiently - Merit goods – goods that government thinks benefits individuals and society

=DIAGRAMS:=

=EVALUATION:= Subsidies are a great way of helping the automobile market in Japan because there will be more consumptions of cars. This is also good for the environment because the government is only supporting eco-friendly cars. However, there is opportunity cost (the second best choice) to this. The 300 billion yen could be spent on other fields, for example, technology development, where the invention of new technology could lower the price of cars. This money could also be spent on merit goods, for example, healthcare and education, or perhaps donated to charity. Also, since Japan has just been hit with earthquakes and tsunami, the government has already spent a lot of money repairing the damage done by these natural disasters, so the 300 billion yen is a huge burden on the taxpayers.