Scenario 10-1 The Demand Curve for Gasoline Slopes Downward and the Supply

question 141

Multiple Choice

Scenario 10-1
The demand curve for gasoline slopes downward and the supply curve for gasoline slopes upward. The production of the 1,000^th gallon of gasoline entails the following:
• a private cost of $3.10;
• a social cost of $3.55;
• a value to consumers of $3.70.
-Refer to Scenario 10-1. Suppose the dollar amount of the externality, per gallon of gasoline, is constant, regardless of how much gasoline is produced. Then the externality could be internalized if producers of gasoline were

• A)provided a subsidy of $0.30 per gallon of gasoline sold.
• B)provided a subsidy of $0.45 per gallon of gasoline sold.
• C)required to pay a tax of $0.45 per gallon of gasoline sold.
• D)required to pay a tax of $0.30 per gallon of gasoline sold.

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Definitions:

Price Level

A composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year.

Consumer Spending

The total expenditure by households on goods and services within a certain period of time, a primary engine of economic activity.

Flow Variable

A flow variable is an economic measure that represents a movement or quantity that is reported per unit of time, such as income per year or spending per month.

Government Bonds

Government Bonds are debt securities issued by a government to finance public expenditure, typically promising to pay periodic interest payments and to return the face value on maturity.