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An Analysis of the Effects of Government Policies on the Automobile Industry in the United States

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An Analysis of the Effects of Government Policies on the Automobile Industry in the United States
{text:bookmark-start} {text:bookmark-start} Introduction {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} 1 Corporate Average Fuel Economy (CAFE) {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} Between the 1960s and 1970s, the abundant use of gasoline caused environmental issues (Conney & Yacobucci 2006), such as vehicle emissions which will pollute the air. Environmental policy plays an important role in auto industry. In 1973, American enacted the CAFE which requires automakers to increase the average fuel economy of motor vehicles sold in the US to reduce the pollution (Bezdek & Wendling 2005), this led to major changes in car design as well as significant on the consumers marketing. {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} 1.1 Automaker’s response {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} {text:bookmark-start} 1.2 Consumer’s response {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} {text:bookmark-end} Consumer satisfaction is one of the factors that impact on the demand of automobile. According to Mankiw (2007), the most obvious determinant of consumers demand is their satisfaction. Between 1975 and 1980, fuel price increased and the fuel economy of new cars increased by 50 percent (Brown 2002, p.17). Because of the higher fuel price, consumers shift the powerful motors to fuel efficient motors. By reducing the gasoline demand, greater fuel economy cars are satisfied for consumers. During the time of higher price of gasoline, the demand of cars supplied under the CAFE standards increased and


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