Problem 1: Evaluation of fuel economy standard (30 points) The federal government has rolled back fuel economy standards set in 2016 for the years 2022-2025. The previous standards would increase the average fuel economy from 41 mpg in 2021 to 49.7 mpg in 2025. The federal government is freezing the standard at 41 mpg for the entire time period. In this problem you will use payback calculations to evaluate the conditions under which the policy provides a net positive economic impact for consumers. Research estimates that the typical vehicle will cost an additional $1,600 in order to increase the fuel economy from 41 mpg to 49.7 mpg with currently available technologies. Vehicles last for 15 years on average. (a) Payback with current technology and prices: Assuming a gasoline price of $2.70/gallon and annual VMT of 12,000 miles/year, how long would it take a consumer to payback the investment in higher vehicle efficiency? (10 pts) (b) Payback with current technology and 2007-2014 prices: The policy was developed during the 2007-2014 time period with significantly higher gas prices. Recalculate the payback in (a) using a $3.50/gallon gasoline price. Does this change your impression of the policy? (6 pts) (c) Payback with improved technology: Improvements in vehicle efficiency technology are expected to reduce the cost difference between the 41 mpg vehicle and the 49.7 mpg vehicle to $1,000. What is the payback with improved technology and current fuel prices ($2.70/gallon)? (6 pts) (d) Reflection: Provide a 3-4 sentence argument for either keeping the 49.7 mpg target for 2025 or locking in the 41 mpg target through 2025. Please expand your discussion beyond payback time in your answer. What other considerations may be important in this decision? (8 pts)