Verified Document

Volkwagen Scandal And Microeconomics Article Review

¶ … tells that Volkswagen has been found, and admitted to, cheating on emissions tests for its vehicles. That cheating had shown that diesel was cleaner than unleaded, which in turn resulted in favorable tax treatment for diesel. This in turn increased the demand for diesel products, as they were cost-competitive versus gasoline cars. With the admission that Volkswagen falsified these tests, leading to the conclusion that unleaded gasoline is the cleaner of the two fuels, there are significant implications including the possible reversal of tax policy in the EU away from favoring diesel as a fuel source for automobiles. The market for fuels is typically subject to various regulations, and emissions are one of the regulations that govern this market. Tax policy is based on multiple factors but in Europe in particular tax policy is based on the desire to control emissions. Tax policy moves the fuel market out of equilibrium, and in this case tax policy was moved to favor diesel. This in turn encouraged the sale of diesel vehicles, as these vehicles were cheaper for consumers to operate. Thus, diesel vehicles were better value to European consumers, and ultimately captured a very high market share.

Should tax policy favoring diesel...

Short run demand may also change. While the market for diesel will not change in the short run, the market for diesel-powered vehicles should change quickly. As consumers realize that gasoline vehicles are cheaper in the long run, they are more likely to demand such vehicles, thereby decreasing aggregate demand for diesel vehicles.
While aggregate demand is likely to change relatively quickly, because the cost of owning a vehicle will change as soon as the tax policy changes are implemented -- and likely the consumer response will be even faster, just knowing that the changes are pending -- production of vehicles cannot change as quickly. There is significant lead time for new vehicle design and production. Some producers will therefore be able to shift production to gasoline vehicles, but the process will take time. Other producers, such as Volkswagen, are focused on diesel engines, and therefore are unlikely to switch to gasoline engines even in the long run. In the face of a decline in aggregate demand, Volkswagen is likely to need another strategic response.

Volkswagen enjoyed comparative advantage with its diesel vehicles under the old tax…

Sources used in this document:
References

Kool, T. (2015). The Volkswagen scandal is bad news for diesel. Time Magazine. Retrieved September 29, 2015 from http://time.com/4048247/volkswagen-scandal-bad-diesel/
Cite this Document:
Copy Bibliography Citation

Related Documents

Microeconomics the Most Common Way of Deciding
Words: 1270 Length: 4 Document Type: Essay

Microeconomics The most common way of deciding between these two options is through capital budgeting. If the two decisions are mutually exclusive, a net present value analysis will determine which of these options is better for the store in the long run. This type of analysis involves calculating the incremental cash flows that derive from the decision, and then discounting them back to the present day. The up front cash flows

Microeconomics the Class Principles Microeconomics. Text Book
Words: 1552 Length: 4 Document Type: Essay

Microeconomics The class Principles Microeconomics. text book Principles Microeconomics N. Gregory Mankiw. paper answer questions. Final Project Following a description final project ECO-112. The project parts, answered complete project. Principles of microeconomics: Products used in daily life Product 1: A Starbucks latte Product description and usage The Starbucks latte is a coffee beverage made with espresso and steamed milk. On the company website it is described as "the original coffeehouse classic. And like most classics,

Microeconomics the Servicemaster Company Is Concerned With
Words: 733 Length: 2 Document Type: Essay

Microeconomics The ServiceMaster Company is concerned with the provision of a wide range of services to not only residential but commercial customers as well. Mainly, its services include but are not limited to facility management services, commercial cleaning as well as restoration services. In this text, I describe the type of market ServiceMaster operates in as well as the competition the company faces; if any. I also make submissions on how

Microeconomics Service Master Pro-Is a Company That
Words: 963 Length: 2 Document Type: Research Paper

Microeconomics Service Master Pro-is a Company that concerns itself with the provision of a wide variety of services to both firms and residences. The company's flagship brands include but are not limited to TruGreen, AmeriSpec as well as Terminix. International operations Currently, Service Master has operations in 14 countries through its vast network of more than 4000 locations. Through its convenient franchise arrangements, the company has continued to expand throughout the world within

Microeconomics Internet Service Providers in the Country
Words: 433 Length: 1 Document Type: Term Paper

Microeconomics Internet service providers in the country are faced with some serious challenges when it comes to microeconomic distribution of resources. They have to consistently provide value-added services in order to be able to gain more customers and retain the existing ones. There are some trade-offs involved when it comes to how big an area the service should cover, who the service should be given to and how to expand or

Microeconomics: Differentiating Between Market Structures in an
Words: 1210 Length: 4 Document Type: Essay

Microeconomics: Differentiating Between Market Structures in an Organization Microeconomics Electronics Industry The electronics industry has become one of the largest and fastest growing industries which generate billions of dollars every year. The major products of this industry include personal computers, laptops, mobile phones, televisions, digital cameras, music players, telephones, speakers, recording media, and all types of accessories for these products. The operations, performance, and profitability of the participants of electronics industry is affected

Sign Up for Unlimited Study Help

Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.

Get Started Now