Suppose the external costs of gasoline are estimated at $1.60 per gallon. The current tax on gas in a state (including the federal and state taxes) is $0.80 per gallon. The table shows the quantities of gas demanded (QD) and supplied (Qs) in millions of gallons at different prices (P) in dollars per gallon in the market for gasoline with no tax. Assume that the demand curve and the supply curve are straight lines. QD P 5.50 5.10 4.70 4.30 3.90 3.50 3.10 2.70 12 16 20 24 28 32 36 40 Qs 44 40 36 32 28 24 20 16 With the tax in effect, the equilibrium quantity of gas traded in the market is 5 x (24) million gallons, the marginal benefit received by gas consumers is $10x (4.30) per gallon, the marginal is social cost of gas is $20 x (5.10) per gallon, the socially optimal (efficient) quantity of gas 11 x (20) million gallons, and the deadweight loss is $6 x (1.6) million.

Suppose the external costs of gasoline are estimated at $1.60 per gallon. The current tax on gas in a state (including the federal and state taxes) is $0.80 per gallon. The table shows the quantities of gas demanded (QD) and supplied (Qs) in millions of gallons at different prices (P) in dollars per gallon in the market for gasoline with no tax. Assume that the demand curve and the supply curve are straight lines. QD P 5.50 5.10 4.70 4.30 3.90 3.50 3.10 2.70 12 16 20 24 28 32 36 40 Qs 44 40 36 32 28 24 20 16 With the tax in effect, the equilibrium quantity of gas traded in the market is 5 x (24) million gallons, the marginal benefit received by gas consumers is $10x (4.30) per gallon, the marginal is social cost of gas is $20 x (5.10) per gallon, the socially optimal (efficient) quantity of gas 11 x (20) million gallons, and the deadweight loss is $6 x (1.6) million.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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