Recently, there has been some discussion about relaxing the mileage requirements on US manufactured automobiles in coming years. It presents a situation that clearly will increasee research, development, and manufacturing costs for producers, leading to decreased competitiveness for our cars compared to those produced in foreign countries without such requirements, thereby leading to potentially lower sales, decreased production and ultimately lower revenues. The impetus behind these policies has been to decrease our dependence on oil and decrease air pollution caused by cars.

• Discuss the trade-off of Pareto efficiency with social equity inherent in relaxing the mileage policy for cars manufactured in the US. Be specific in your examples.