Q1)

a) (i)
Ans: Demand is the want and the willingness of the consumer to buy goods and services at
a given point in time, ceteris paribus. For example, if someone wants to buy a Lamborghini.

(ii)
Ans: Subsidy is a financial support or payment provided by a government to private firms to
encourage desirable activities.

b)

Ans: Reducing the indirect tax by half will result in a reduction of expenses, which will raise
supply and shift the supply curve to the right. This will lead to a decrease in price and an
increase in quantity.

c) The Chinese government has implemented or intends to implement a number of policies

to encourage the use of cleaner, low-emission vehicles on its roads. The policies include
emission regulations, reduced road fees, reduced indirect taxes on small engines, and
subsidies and incentives for purchasing electric vehicles.

Emissions rules have previously been established by the Chinese government. The
market for gasoline- and diesel-powered vehicles with high emissions may be influenced by
these emission limits. People will drive fewer high-emission vehicles as they don't want to incur
penalties. The market for automobiles with low emissions and significant social advantages will
thus rise as a result. Then, over time, China's emissions will decline.
 Moreover, the government decreased road fees. If the reduced road taxes apply to both
high- and low-emission car types, there won't be much of an impact. Since high-emission
vehicles are far less expensive than low-emission vehicles, more people will likely purchase
them. In order to address this, the government should raise taxes and road fees for high-
emission cars. As a result, over time, there will be a greater demand for low-emission cars.

The government also lowered the indirect tax on vehicles with smaller engines, or low-
emission vehicles. Reduced indirect costs lower manufacturing costs, allowing for the
production of more automobiles. As a result, producers will lower car prices, increasing the
quantity offered at each price point and increasing supply. As a result, more people will begin
purchasing low-emission automobiles.

Additionally, companies that produce low-emission automobiles may be eligible for

incentives. Subsidies can assist in supplying more vehicles since they will lessen the burden of
production expenses. In an effort to spur demand for low-emission vehicles, the companies
might lower the price per car. This may also contribute to the global success of the Chinese
auto sector.

Finally, the government can provide incentives to encourage individuals to switch to cars
with lower emissions. Posting adverts on billboards, news, social media, etc. is one way to do
this. Free low-emission car test drives are another service they may offer.

In conclusion, the Chinese government has devised a number of strategies to boost the
use of low-emission cars, including tax reductions, road charge reductions, and emissions
regulation. Nonetheless, the government is still able to give businesses grants and subsidies in
addition to offering incentives to draw in customers.