Economics: The Basics 1st Edition by Mike Mandel

Exercise 4

It is common to use the tax system to help support new energy technologies. The federal government, for example, offers a tax credit for some hybrid vehicles (gas-electric combinations that use less gasoline than conventional internal combustion engines).
a) What effect does the tax credit have on the number of hybrid vehicles sold?
b) Show the effect of the tax credit on a supply-demand diagram (Hint: It's like a tax, except that the amount paid by the buyer, after the rebate, is less than the amount received by the seller).
c) Does the tax credit raise or lower the price charged by sellers of hybrid vehicles?