Maurice Tutor

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    Argosy University/ Phoniex University/
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    Oct-2001 - Nov-2016

Category > Economics Posted 13 May 2018 My Price 9.00

Gasoline Consumption

i. Gasoline Consumption & Externalities (9 points) Suppose the daily market for gasoline in California is competitive. The demand is given by P 10-1/2Qd, while the supply is given by P-2/5+1/10Qs. Price is measured in s lon. Quantity is measured in millions of gallons Hint: You will need to use algebra which will require finding a common denominator to allow adding and subtracting fractions. Please consider sketching a picture of this market to help you think. Your final answers will not be ugly numbers, but they may be fractionsldecimals. Be careful and keep it simple! a. Mathematically solve for the private market equilibrium quantity (Qm). (2 points) b. Suppose consuming gasoline imposes an externality from air pollution and other environmental damage in that the amount ofs2 for each gallon consumed. Calculate the socially optimal gasoline production and consumption (Q.) and clearly state whether the market outcome found in part a leads to over-production and consumption or under-production and consumption of gasoline. (4 points) Hint: You should treat this as a consumption externality. c. Should the government use a tax or a subsidy to internalize this externality? Exactly how much should the tax or subsidy be in dollars per gallon? Briefly explain your answer. Hint: Your answer must be very specific and you must use economic language and the economic way of thinking. (3 points)

Gasoline Consumption & Externalities Suppose the daily market for gasoline in California is competitive. The demand is given by P = 10 - 1/2Qd, while the supply is given by P = 2/5 + 1/10 Qs. Price is measured in $/gallon. Quantity is measured in millions of gallons. a. Mathematically solve for the private market equilibrium quantity (Qm). b. Suppose that consuming gasoline imposes an externality from air pollution and other environmental damage in the amount of $2 for each gallon consumed. Calculate the socially optimal quantity of gasoline production and consumption (Q*) and clearly state whether the market outcome found in part a leads to over-production and consumption or under-production and consumption of gasoline. c. Should the government use a tax or a subsidy to internalize this externality? Exactly how much should the tax or subsidy be in dollars per gallon? Briefly explain your answer.

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Maurice Tutor
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Status NEW Posted 13 May 2018 02:05 PM My Price 9.00

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