Gasoline prices have been in the news, and this has directed new attention to th
ID: 1206396 • Letter: G
Question
Gasoline prices have been in the news, and this has directed new attention to the issue of appropriate gasoline taxes and automobile use costs. Suppose that the demand in Michigan for driving private cars can be represented as below. Assume that each mile driven costs the driver or owner an amount equal to $45 (in marginal costs such as gasoline, depreciation, etc.). In addition, each mile driven imposes additional costs on all members of society because damaging pollutants are released into the air. The line MEC represents these additional external costs, the marginal external costs. Use this information to answer the following two questions. Which of the following is a correct statement about this market? Circle or identify all that are correct. The amount of driving selected by Michigan drivers is b. The amount of driving selected by Michigan drivers is a. The economically efficient amount of driving in Michigan is c. Because of the pollution cost, the economically efficient amount of driving in Michigan is zero. The cost per mile driven in Michigan is $45. Which of the following would work to establish a socially efficient amount of driving? Circle or identify all that apply. A driving fee of more than $45 per mile. A driving fee per mile equal to MEC at the efficient quantity. A tax on gasoline that increases MPC to MSC. None; it is not possible to get drivers to reduce the amount of driving. None, because no driving is efficient because even one mile of use causes pollution.Explanation / Answer
1) b) the amount of driving is at point a. because MPC=demand. this point is economical for drivers.
2) c) a tax on gasoline that increase MPC to MSC bcause when MSC=demand that point is socially optimal point
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