Suppose That the EPA Has Proposed Strict Controls on the Amount

question 126

Multiple Choice

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.
Refer to the information given above.Assuming that the supply of diesel fuel has a positive slope and demand has a negative slope,one can infer that the EPA determined that:

• A)the external benefit of using diesel fuel is less than 10 cents.
• B)the external cost of using diesel fuel is greater than 10 cents.
• C)the external cost of using diesel fuel is less than 10 cents.
• D)the external cost of using diesel fuel is equal to 10 cents.

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Definitions:

Demand for Loans

The desire or willingness of individuals or businesses to borrow money from financial institutions at given rates and terms.

Nominal Return

The return on an investment without adjusting for factors like inflation, representing the raw or unadjusted profit or loss.

After-Tax Real Rate

The interest rate after the adjustment for taxes and inflation.