Originally Posted by Economist:
"People obviously want cars with better gas mileage. So if it's cheap to produce such a car, then please explain to me why companies aren't doing it? After all, it'd be in their greedy, profit-maximizing self interest."
Surely that's a valid question. The technology that could be used to improve fuel efficiency is instead being used to increase power. It is not unusual now for cars to get > 1 horsepower per cubic inch, and some cars now have 300 horsepower or more. Many family cars will accelerate from 0 to 60 mph in less than 8 seconds, which 20 years ago, would have been considered extremely fast for a family car. If modern engine technology had instead been used to improve fuel mileage, then we'd have smaller engines and cars would take perhaps 10 or 11 seconds to accelerate from 0 to 60 mph.
An otto-cycle (4-stroke, spark ignition) engine is most efficient when it is working hard. The power is controlled by the throttle valve and, when it is not fully open, power is wasted sucking air in against the vacuum created by the throttle valve (pumping losses). When a smaller engine is used, then the throttle valve is generally open farther, reducing pumping losses, and efficiency is higher. Of course this is somewhat oversimplified and there are other factors involved, but it is basically correct.
As to why manufacturers are using bigger engines than required, it seems to be because people like high power. High power must sell, otherwise car advertisements would not be so performance oriented.