The Following Data Show the Relationship Between the Number of Drivers

question 114

Multiple Choice

The following data show the relationship between the number of drivers who leave for work at 8:00 am,their average commute times,and their marginal benefit associated with the commute times. $$\begin{array} { c c c } \begin{array} { c } \text { Number of drivers } \\ \underline {\text { that leave at 8:00am }}\end{array} & \begin{array} { c } \text { Average commute } \\ \underline {\text { time to downtown }}\end{array} & \begin{array} { c } \text { Marginal } \\ \underline {\text { Benefit }}\end{array} \\ 100 & 30 \text { minutes } & \$ 10 \\200 & 65 \text { minutes } & \$ 8 \\300 & 110 \text { minutes } & \$ 4 \\400 & 170 \text { minutes } & \$ 3 \\500 & 260 \text { minutes } & \$ 1\end{array}$$
Refer to the information given above.An argument for imposition of a toll rather than using a negotiated solution of the type suggested by the Coase Theorem is that:

• A) this is not an externality problem.
• B) government needs additional revenues.
• C) the external cost is not well defined.
• D) private negotiations among 500 drivers is impractical.

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Definitions:

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase an asset or security at a predetermined price within a specific time frame.

In the Money

A term describing an option contract that has intrinsic value, where the strike price is favorable compared to the market price of the underlying asset.

Expected to Expire

Refers to assets or rights that have a limited time frame before they cease to be valid.

Warrant

A financial instrument that gives the holder the right to purchase a company's stock at a specific price before a certain date.