Q1. Tesla and the Market for Electric Vehicles in the US (E2)

Electric-car development seems to be the way of the future to help achieve zero-emissions vehicles. Tesla is a market leader among electric vehicle (EV) manufacturers. Read the following articles and then answer the questions below:

https://arstechnica.com/cars/2019/12/tesla-stock-just-hit-a-new-record-of-400-heres-one-reason-why/

https://www.theverge.com/2020/1/29/21113987/tesla-q4-2019-earnings-results-profit-revenue-model-3

Tesla’s Model 3 Profit Margin is 35%, and It Can Double

https://theconversation.com/the-road-to-electric-vehicles-with-lower-sticker-prices-than-gas-cars-battery-costs-explained-137196

Based on the discussion in these articles and economic theory from Module E2,

1. explain the important role of economies of scale on the production of EVs.
2. draw an appropriate diagram to illustrate and explain in some detail the profitability of Tesla’s Model 3 sedan over the second half of 2019.
3. Do a bit of extra research and provide a commentary on Tesla’s ability to accelerate EV profitability and gain more market share (and demand) in the foreseeable future.

Q2. Merchant Ships and Negative External Effects of the Oil Spill in Mauritius (E3)

Consider the market for merchant ships. Read the following key article and the relevant weblinks contained within https://theconversation.com/why-decarbonizing-marine-transportation-might-not-be-smooth-sailing-116949

• Based on the cited readings (links contained within the key article): construct a table and summarise the key benefits and external environmental costs of merchant ships.
• Based on Module E3, draw a relevant diagram to illustrate and explain the negative production externality of merchant ships. Label your axes and curves carefully and use hypothetical numbers in your diagram. Assume—as CORE ESPP Unit 11 does—that the market is competitive. (https://core-econ.org/espp/book/text/11.html#figure-11-7a)
• Read the following key articles that talk about the need for sufficient compensation for those parties negatively affected in the Mauritian oil spill:

https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2453

Mauritius oil spill compensation could be limited by maritime law technicality

Assume for simplicity that the main third party affected is the tourism industry in Mauritius. Building on the key diagram you developed in part (b) above, illustrate and critically evaluate the government policy of compensation to help solve the market failure in this case.