How will a new technology influence the equilibrium in a product market? If that influence is felt across many firms, then what are the implications for the national economy?

1. The economic impact of adopting hybrid power technology in cars manufacturing
At the beginning of 21st century, governments struggleto achieve balancebetween economic,
social and environment sustainability, which were faced by major challengers and threats like
climate changes, exhausting of natural resources, organic population growth, environmental
threats and economics downturns. (Richardson, 2013). Green Economy is one of United
Nation’s suggestedsolution for government to facethose challenges (UNDP, 2012). According
to UNDP, Green Economy could be the vehicle to achieving these goals, as UNPD defines
Green Economy “that results in improved human well-being and social equity, while
significantly reducing environmental risks and ecological scarcities” (UNDP, 2010).
Governments who adopt the Green Economy Initiative are working to achieve set targets and
key factors to meet UN standards, one of those target is achieving Green Transportation,
which contributes heavily by focusing on cultivation of renewable energy and technologies to
reduce the carbon footprint produced by vehicles (Richardson, 2013). Hybrid Electric Cars
(HEC)are considered one of the firststepping stones to play important role in reducing carbon
footprints, utilizing renewable energy and reducing dependence on fossil energy, which lead
to knowledge and economic growth of the country (Gallagher and Muehlegger, 2008).
Producing HEC requires car manufactures to spend on research and development to produce
a commercial effective technology to power the cars. Giant car manufactures are racing to
achieve successful and suitable HEC for production since 1990s, with first success story of
Toyota Prius in 1997, giving Toyota the lead and competitive advantage over American or
European car manufactures (Høyer, 2007). This paper is aimed to study the micro and macro
economics effect when car manufactures adopt hybrid technologies in their production lines.
How the market demand and supply is affected with this adoption? And what is the impact
on national income after adopting hybrid fuel technology by several car manufacturers?
Generally, the demand of a product is governed by the main four factors of 1) Price of
substitutes, 2) consumer income, 3) preferences and 4) Price expectations (Begg and Ward,
2012). Currently, HEC are still in the early stages of adoptions with an overall registered
vehicles recorded at 1% combining Europe and Globally. (McKinsey & Company, Amsterdam
Roundtable Foundation, 2014). Considering the first factor, HEC upfront investment is still
higher than Internal Combustion Engines (ICE) cars with fuel efficiency that are considered
main substitute of HEC, but consumers are considering the long term benefits of government
subsidies and incentives to encourage the shift to green cars (Gallagher and Muehlegger,
2008), and the additional benefits of lower fuel consumption that leads to longer travel
distance and saving on fuel spending increase sales of HEC in the market, which linked to
consumer income and savings (Ozakiand Sevastyanova, 2009 and Gallagherand Muehlegger,
2008). If we consider a substitute of HEC with anther greener car technology like electric cars,
consumer have fewer substitute in the market to make the switch if HEC increased in price as
a sources to support environmental movement and battling with the increase of fuel prices
and government taxation (The Economist, 2004). Preferences of consumers plays a major
role, which is depend on their awareness of environmental issues. For example, in Norway
29% of HEC buyers attribute their decision to support the reduction of carbon footprint.
Consumers of HEC tend to have a sense of pride to their contribution to reducing carbon
footprint to save the environment, and being smart by putting initial purchasing higher
investment but making saving in the long run and reducing their fuel consumptions. (The

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Economist Intelligence Unit, 2004). Figure 1 summarize the motivations of consumers
purchasing hybrid vehicle based on research done by Ritsuko Ozaki and Katerina
Sevastyanova. (Ozaki and Sevastyanova, 2009).
Governments are committed to reduce carbon footprint and adopt Green Economy
initiatives, the demand for efficient HEC is increasing (McKinsey & Company, Amsterdam
Roundtable Foundation, 2014). Governments established incentive programs to adopt HEC,
such as increasefueltaxes,reducing HEC taxes and giving especialprivileges toHEC (McKinsey
& Company, Amsterdam Roundtable Foundation, 2014). For example, the US incentive
program in 2004 for HEC, lead to increasing demand for Toyota Prius, making the giant car
manufacturing doubling their production to meet this demand (The Economist Intelligence
Unit, 2012). Figure (2) shows global leading countries carbon footprint reduction strategy to
achieve by 2020 (McKinsey & Company, Amsterdam Roundtable
With the market demand for HEC,this created a market for new car manufacture to enter the
market, but small or new manufactures are faced with reality of high entry barriers from the
financial capital required for research and development, building the suitable infrastructure
and the means for distribution at large scale (Dagsvik, Wennemo, Wetterwald and Aaberge,
Figure (1): Consumer motivations to purchase Hybrid Vehicle
Figure (2): CO2 vehicle emissions goals.

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2001). Therefore, HEC market is considered oligopoly market with big firms with the financial
means to cross the high entry barrier (The Economist Intelligence Unit, 2012). Also, major car
manufactures are diversifying their products between HEC and ICE to secure their future
financial success and contribute (Begg and Ward, 2012).
Putting the demand and supply together, the demand of HEC is inelastic, because the market
is highly depended on consumer preferences and oligopoly market at supplier side (Ozakiand
Sevastyanova, 2009). In short run, having inelastic demand and oligopoly supplier
relationship, adopting HEC technologies in car manufacturing will positively effect the supply
curve to move to the right to new equilibrium decreasing the price and increase of supplied
quantities. In the other hand, the decrease of price will face an increase in demand because
of Green Economy initiatives and Green Transportation has taken by government sectors
(UNDP, 2012 and Richardson, 2013). Firms are enhancing their hybrid fuel technology to
enable them provide a cheaper version of their products and increase their profit
(Mackintosh, 2006). In 2011, with anumber of big firms adopting hybrid fueltechnology, firms
started to compete and reduce their prices by increasing their production of HEC in the
market and overtaking the traditional vehicle within the coming 5 years (Simon, 2011).
In the long run, utilizing game theory when several firms start to adopt hybrid vehicles
technology and place them into the market, prices for HEC will reduce and becomes at
affordable price compared to ICE vehicle (McKinsey & Company, Amsterdam Roundtable
Foundation, 2014). OlivierAppert chairman of IFP Energies,one of the most advocated of HEC
technologies predict by 2030 all cars sold in market will be based on hybrid technology,
because of the efficiency of the hybrid vehicles compared to traditional vehicles with enough
room for innovation and development (Urquhart, 2013). By 2016, it is expected to have a
total of 79 models and hybrid driving vehicle in the market, those models will be produced by
existing car manufacturer players, such as, BMW, Toyota, VW, Ford, Audio… etc.. From family
cars to sport cars to satisfy all ranges of customers (McKinsey & Company, Amsterdam
Roundtable Foundation, 2014). With more HEC models available in the market, the long term
adoption of hybrid technology leads firms to produce hybrid models in lower price, as the
example of Toyota plans to lower prices of their successful model Prius (Reed and Simon,
2010).
When several firms adopt HEC technology to produce environmental friendly cars this will
lead to national contribution to Green Economy (UNDP, 2012). In General, adopting new
technologies will directly impact economic growth by creating new jobs, increasing GDP,
introducing new services and products, restructuring of the workforce, and increase business
innovation (Kvochko, 2013). As HEC technology is fairly new, the demand for skilled
employees will increase for different fields from research and development to car
maintenance and supporting services, this will influence the demand and supply of skilled
workforce and impact the wager (Urquhart, 2014 and Carnoy, 1997; Hecker, 2005). Studying
the macroeconomic impact of adopting HEC by severalcar manufacturers willrequire analysis
of factors contributing to national income 1) consumer spending 2) investment 3)
government spending and 4) net export and import (Begg and Ward, 2012).
Adopting HEC technologies by several firms in a country will positively influence the national
income. As established earlier, saving in fuel spending and fuel taxation leads to an increase

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of consumer purchasing power to other commodities to contribute to national GDP and
reduce government spending in fuel (Kenney, 2015). The adoption of HEC will require a
number of investments in forms of government spending and/or new private sectors. An
example of those investments is the recharging units for HEC. Currently, 80% of the
recharging facilities is based on home stations, prospective plans are to reduce it to 60% and
enables private and government sector to provide more recharging station for
accommodating the mess the market for HEC and make it accessible to consumers (McKinsey
& Company, Amsterdam Roundtable Foundation, 2014). The financial sector will play a major
role as well in making HEC adoption quick and easy in road of achieving Green Economy, by
providing loan facilities to invest into infrastructure, new research and development project,
and an educational institute to increase sufficient human capital (UNDP, 2012). Government
spending will increase by establishing cities to stimulate the shift and usage of new
technology, such as the case of Silicon Valley for ICT that noticeable higher investment
prospective and greater percentage of specialized skills to be the leading edge of innovation
and technology adoption (Hackler, 2006). Adopting new technologies with mix of investments
and government spending leads to innovations and creating new businesses to enable the
mass adopting of technologies, looking at UK’s commitment for greener transportation and
reducing vehicle’s carbon footprint, the UK government is committed for £500 millions in
developing smart highways with new technology to recharge HEC using wireless technologies
to support the growth of HEC adoption by consumers (UK Government, 2015 and Highways
England, 2015)
Net exports for countries producing HEC will increase, with several countries participating
aiming to reduce carbon footprint, and limited car manufacturers international demand is
created for exporting HEC as product, which contributes to overall national income, like in the
case of Toyota Prius’s biggest market is U.S. and contributes to Japan’s GDP (Perla, Tonetti,
Waugh, 2005).
Employment will be majorly affected by this mass adoption of HEC technology by firms, the
skill levels of employees will be different to develop, produce and maintain HEC running.
Firms willrequire to invest into new specifictraining programs for their employees to improve
their working skills and knowledge with new hybrid technology in their factories. Also, with
increase demand for specific workforce, wagers will increase for technical professionals in
field of hybrid vehicles that contributes to increase of consumer purchase power (Yim,
Forman, Kwa, 2013). With positive aggregate demand increase at national level, combined
with several government injections from incentive programs and lowering taxation to adopt
HEC, will lead to demand pull inflation increase and reduction of interest rate (Sharma, 2015)
In conclusion, adopting new technology in hybrid vehicle manufacturing that meets the
demand generated from consumers’ preferences for cleaner mean of transportations and
government push to achieve greener transportations system, will lead to positive shift of the
supplier curve and establishing new market equilibrium lower than previous one that leads
to lower price in favor of the customers. In addition, car manufacturer will secure their future
income and place in their market shares by diversification of their productions lines. The
national economic will positively grow when a number of car manufacturer within same
country adopts hybrid vehicletechnology. Governments reduce their spending on Oilas mean
of energy to power vehicles, increase in consumer purchase power as a result of fuel saving,

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several new investment opportunities in infrastructure suitable to adopt HEC in the cities and
increasing government injections into the economy to achieve their green economy initiatives
and gaining cleaner environment, those elements will contribute to increase national income
and overall national GDP for better economy, lifestyle and preservation of environment.

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