A state has a population of 17 million people and an average ownership of 1.1 cars per person, each driven an average of 12,000 mi/year, at an average fuel economy of 24 mi/gal of gasoline (mpg). Officials estimate that an additional $60 million per year in revenue will be required to improve the state’s highway system, and they have proposed an increase in the gasoline tax to meet this need. Determine the required tax in cents per gallon.
What will be an ideal response?
17,000,000 people × 1.1 cars/person = 18,700,000 vehicles in this state.
Next, determine the number of miles driven each year.
18,700,000 cars × 12,000 miles/year/car = 2.244 × 1011 miles driven per year
Now determine the number of gallons consumed each year.
(2.244 × 1011 miles/year)/24 mpg = 9,350,000,000 gallons/year
Finally, determine the required tax increase.
(9.35 × 109 gallons / year) × TAXINCREASE = $60,000,000 / year
TAXINCREASE = $0.00642/gallon
TAXINCREASE = 0.642 cents per gallon
Therefore, impose a 0.7 cents per gallon tax to raise the required revenue.
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