Honda promotes Accord by saying "it has a fuel efficiency of 30 mpg (miles per gallon) on highway." (1) What is incorrect about this statement? (2) If the best engine currently available can run at 48 mpg, what is Accord's fuel efficiency? (3) Suppose next year, a breakthrough technology improves the best engine's performance to 85 mpg and Accord's to 50 mpg, what would be productivity growth, efficiency change, and technical change for Accord? (4) How can you check the results obtained above is correct? (Hint: it might help to draw an X-Y diagram.)

 

Answer:

Honda promotes Accord by saying "it has a fuel efficiency of 30 mpg (miles per gallon) on the highway." 

(1) What is incorrect about this statement?

Technically, 30 mpg is a fuel consumption value (economy), not fuel efficiency. The mpg is an effective way of determining if a vehicle is going to save you money on your fuel. It is the standard way of measuring fuel economy.

 (2) If the best engine currently available can run at 48 mpg, what is Accord's fuel efficiency?

The fuel efficiency of Accord would be, 

Fuel efficiency = 30 mpg / 48 mpg * 100 

Fuel efficiency is 62.5% 

 (3) Suppose next year, a breakthrough technology improves the best engine's performance to 85 mpg and Accord's to 50 mpg, 

What would be the productivity growth?

Generally, the productivity growth rate is the opportunity to increase output without increasing inputs and incurring these costs.

Formula is,

Productivity growth = (output - previous input) /previous input x100

= 50-30 /30 x100

= 66.67%

The efficiency change would be the technological catch-up it means from 62.5% it has increased to 66.67% thus the efficiency change would be 66.67-62.5 = 4.17%

and technical change would be the innovation for Accord. These refer to improvements in the design or quality of the new and much efficient Accord.

 (4) How can you check the results obtained above are correct? (Hint: it might help to draw an X-Y diagram.) 

Using a diagram we can see that from year 1 to year 2, the efficiency has improved.

PFA