Asked by Jasmine Collymore on May 08, 2024
Verified
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 $0.11 per gallon of gasoline sold.
B) provided a subsidy of $0.29 per gallon of gasoline sold.
C) required to pay a tax of $0.29 per gallon of gasoline sold.
D) required to pay a tax of $0.11 per gallon of gasoline sold.
Internalized
The process of incorporating external costs or benefits into one's own decision-making criteria.
Externality
A consequence of an economic activity experienced by unrelated third parties, which can be either positive (benefits) or negative (costs).
Gasoline
A highly flammable liquid derived from petroleum, used mainly as fuel in internal combustion engines.
- Determine the ideal amount of subsidy or tax necessary to reach a state of social optimality.
Verified Answer
Learning Objectives
- Determine the ideal amount of subsidy or tax necessary to reach a state of social optimality.
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