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Hydro Powered Vehicles In Japan Essay

1596 words - 7 pages

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hydro-powered vehicles in Japan
Felix Young
November 9, 2015


November 9, 2015


At the beginning of 2015, the Japanese government announced it would invest 40 billion yen to promote the use of hydrogen energy and hydro-powered vehicles ahead of the 2020 Tokyo Olympic Games (Mami Maruko, The Japan Times). Additionally, starting from 2016, consumers who purchase hydro-powered vehicle are going to receive subsidies worth 1 million yen in total (8300 USD). Using concepts such as law of demand, externality and market failures from an economic perspective, we are able to better interpret the ...view middle of the document...

Externality occurs when the actions of consumers or producers give rise to positive or negative side-effect on other parties who are not involved in these actions (Ellie Tragakes 112). In this case, the consumption of hydro-powered vehicles provides spillover benefit such as less air pollution, lower greenhouse emission level and improved life quality of citizens. However, due to insufficient external support from the Japanese government previously, this product is being under-consumed in the market. This is considered to be a market failure by economists because the resource in the market is not allocated in the most efficient way (Ellie Tragakes 101). The graph below illustrates this positive externality of Japanese hydro-powered car market.
S
MPB
MSB
Price
Quantity
0
Popt
Pe
Qopt
Qe
External
Benefit
S
MPB
MSB
Price
Quantity
0
Popt
Pe
Qopt
Qe
External
Benefit


On the graph above, the current market equilibrium point for hydro-powered vehicles is at price Pe and is consumed at a quantity of Qe. The market is at equilibrium state but the external benefit that the society receives is being ignored. The current market equilibrium only reflects the balance between marginal private benefit curve (MPB) and supply curve (marginal private cost equals to marginal social cost in this case). Therefore, if we add the marginal social benefit into consideration. A marginal social benefit curve (MSB) occurs on the right of marginal private benefit curve (MPB). The intersection point between marginal social benefit curve and supply curve is the optimum equilibrium point from a society’s point of view. At this optimum equilibrium, the price of hydro-powered cars is Popt and the quantity demand is Qopt. The vertical difference between marginal private benefit curve (MPB) and marginal social benefit curve (MSB) is the external benefit received by the society through the consumption of hydro-powered cars.
By analyzing the graph above, we able to draw the conclusion that hydro-powered vehicles is currently under-consumed. In order to correct this externality, we need to increase the demand and shift the marginal private benefit curve (MPB) towards the marginal social benefit curve (MSB). In this case, the Japanese government chooses to start an advertising campaign and implement consumer subsidies to achieve this effect.
Part of the initial 40 billion yen funding will be used to set up advertising campaign which aims to persuade consumers to purchase hydro-powered vehicles. An Advertising project can demonstrate the advantage of hydro-powered vehicles to the public. As long as some consumers begin to realize that hydro-powered cars can indeed help them save spending on gasoline and drive in a more environmental-friendly way, they will be more willing to purchase these vehicles. Due to change in consumer preference, demand curve will shift to the right-ward direction and becomes closer to the marginal...

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