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. 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 cost of using diesel fuel is greater than 10 cents.
B. the external cost of using diesel fuel is less than 10 cents.
C. the external benefit of using diesel fuel is less than 10 cents.
D. the external cost of using diesel fuel is equal to 10 cents.
Answer: A
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Refer to Figure 19-5. The Chinese government pegs the yuan to the dollar, at one of the specified exchange rates on the graph, such that it overvalues its currency. Using the figure above, this would generate
A) a shortage of yuan equal to 500 million. B) a shortage of yuan equal to 100 million. C) a surplus of yuan equal to 700 million. D) a surplus of yuan equal to 200 million.
Refer to the accompanying figure, which shows the market for cups of coffee. Consider the original supply and the original demand curve. If the government imposes a price ceiling of $1.00 on a cup of coffee, then there would be:
A. a short-term excess demand for coffee, followed by an increase in the equilibrium price. B. an excess supply of coffee. C. a new equilibrium at a price of $1.00 per cup and a quantity of 50 cups per hour. D. an excess demand for coffee.
Of the following, the most likely example of price discrimination is when:
A. restaurants charge different prices for chicken and beef. B. hotels charge different rates for the same rooms when conventions are held. C. supermarkets charge different prices for oranges and apples. D. a firm sells different shoes for different prices.
Using Figure 1 above, if the aggregate demand curve shifts from AD3 to AD2 the result in the short run would be:
A. P3 and Y1. B. P2 and Y1. C. P2 and Y3. D. P1 and Y2.