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(Solved): .] Assignment 3, P. 4 4 Theraph Below Depicts The Supply And Demand For Gasoline In California, With ...


.] Assignment 3, p. 4 4 Theraph below depicts the supply and demand for gasoline in California, with prices in dollars per ga
.] Assignment 3, p. 4 4 Theraph below depicts the supply and demand for gasoline in California, with prices in dollars per gall, and the quantity in millions of pallons per day - Soda! CO CUW $ 30 15 20 25 30 35 40 45 Suppose scientific studies determine that every gallon of gasoline used for driving causes $3 in environmental damage. Draw the social cost curve in the diagram b. What are the equilibrium and optimal quantities of gasoline consumed per day in California? Equilibrium million gallons/day. Optimum 1 million gallons/day, c. At the equilibrium price and quantity () what is the total cost of the externality (environmental damage)? $ that the units are millions of gallons/day). per day (remember (i) What is the deadweight loss from the externality? per day d. Show in the diagram how a $3/gallon tax on gasoline would achieve the optimal consumption of gasoline. e. What is the total revenue raised by this tax? cost of the externality once the tax is imposed? per day. How does it compare to the total f The Green Party candidate for governor of California argues for doubling the gasoline tax from $3 to 56, saying that it will result in less pollution and consequently make Californians better off. Is this a correct statement? Explain why or why not

Expert Answer


A) MSC = PMC + 3 MSC : Marginal social cost Supply curve shifts upwards by $ 3 B) at eqm , demand cuts supply So
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