In 2022 General Motors received a \$1 billion subsidy from the US Government to open two new electric vehicle factories in the USA. This was expected to generate 4000 new jobs. Evaluate the microeconomic effects of subsidies paid to electric vehicle manufacturers. Include at least one appropriate diagram in your answer.

Quantitative skills assessed
QS4: Construct and interpret a range of standard graphical forms

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance.
The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.

Knowledge, application and analysis ( 12 marks) - indicative content
- Subsidy- cash grant paid to encourage production
- Reduces electric vehicle manufacturers' costs of production
- Generates 4000 new jobs in the USA
- The cost per iob created is \(\$ 250000\)
Evaluation (8 marks) - indicative content
- Opportunity costs as the \(\$ 1\) billion given to General Motors cannot be spent on improving healthcare for the poor or spending on education
- If subsidies are paid to other electric vehicle manufacturers then the costs would be substantially higher
- Electric vehicle manufacturers may become dependent on subsidies
- Electric vehicle manufacturers may become complacent and less focused on cutting costs
- Two new factories being built cause environmental damage
- Is it fair on other vehicle manufacturers outside the USA that do not receive subsidies?
- Magnitude of the subsidy is substantial- although General Motors still have to spend billions starting production at these factories
- Production may be capital intensive meaning few people are employed
- External benefits 4000 additional employees spending in local businesses
- Other indirect employment from suppliers to General Motors so more than 4000 new jobs are created
- Balance the job losses in petrol and diesel with the job creation at General Motors
- Electric vehicles still need electricity to be generated and if this is generated using fossil fuels then environmental costs are higher than first thought