Greenwood has 100 houses, each surrounded by beautiful trees.

In the fall, these trees drop their

leaves, and the residents of Greenwood must gather up the leaves surrounding their homes, so the

City of Greenwood can remove them.

Residents can gather their leaves with either a rake or a

gasoline powered leaf blower.

It takes a resident 20 hours to gather leaves with a rake, but only 10

hours with a leaf blower.

All residents own a rake, and each can also rent a leaf blower for $120.

Residents only rent a leaf blower if the value of the time they save by using the blower instead of the

rake exceeds the rent for the blower.

The table below gives the distribution among residents of the

opportunity cost of an hour of time.

Opportunity cost of

an hour of time -> Number of residents

$50 25

$40 25

$30 25

$20 25

A leaf blower saves time, but it is very noisy.

Operating a leaf blower imposes one dollar of

external cost on every resident.

Suppose that the City of Greenwood imposed a tax on leaf blowers

that internalizes the external cost of leaf blowers.

How would this tax change total social profit

(including external costs and taxes) of Greenwood residents?

a.

Total social profit would increase by $500.

b.

Total social profit would increase by $2,500.

c.

Total social profit would not change.

d.

Total social profit would increase by $5,000.

e.

Total social profit would decrease by $10,000.