1. Who really pays the cost of a government price-incentive plan like Cash for Clunkers? Why? What other ways can you think of to distribute such costs?

During a recent summer, the federal government undertook the temporary Car Allowance Rebate System, abbreviated CARS but popularly known as the Cash for Clunkers program.
Under the plan, drivers of qualifying cars from the years 1984 through 2002 with an EPA-rated efficiency of 18 miles per gallon or less received a voucher worth $3,500 to $4,500 for trading those cars in to purchase a new car with an EPA rating of 22 miles per gallon or better.
(The voucher amount varied depending on the difference in miles per gallon between the trade-in and the new purchase.) In other words, the government wanted to encourage the purchase of efficient new cars by, in effect, temporarily reducing the price to qualified buyers.
The purpose of the plan was twofold: one goal, motivated by the recession-weakened economy, was to “shift expenditures by households, businesses, and governments from future periods when the economy is likely to be stronger, to the present when the economy has an abundance of unemployed resources that can be put to work at low net economic cost,” as stated by Christopher Carroll. The second goal was to reduce harmful emissions by getting a large number of older, gas-guzzling vehicles off the road.