Suppose that the EPA has proposed strict controls on the amount of sulfur that d

Question

Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope.and demand has a neative slkope one can infer that the EPA determined that: Suppose that the EPA has proposed strict controls on the amount of sulfur that diesel fuel contains. These controls were designed to fully offset the cost of pollution generated by diesel fuel vehicles. The effect of the regulation is estimated to increase the equilibrium price of a gallon of diesel fuel by 10 cents. Suppose that demand for diesel fuel is perfectly inelastic and supply has a positive slope. The effect of the regulation will_than if demand were not perfectly inelastic. A. increase p

Explanation / Answer

Answer :-

1. (C) The external cost of using diesel fuel is less than 10 cents.

2.(D) Decrease only if diesel fuel is a normal good.

3. (B) Increase price by less and reduce quantity by more

4. (C) Small, relatively inelastic.

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