Microeconomics Question:

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Discuss the effectiveness of each of the following policies intended to reduce the amount people drive or the severity of the external damage they create.

I. Use a supply and demand graph for gasoline to analyze the effect of a $1.00 per gallon tax on gasoline. Then explain how this affects the negative externalities created by driving. (4 points)

II. Show on a supply and demand graph for car licenses the effect of an increase in the annual licensing fee from $50 to $100 a car. Explain how this effects the negative externalities created by driving. (4 points)

III. Use a marginal benefit/marginal cost graph for bridge use to analyze the effect of a toll on a popular and crowded bridge, given that the toll is charged at all times of day. Assume that the marginal cost for using the bridge is just the toll charge. Explain how this effects the negative externalities created by driving. (4 points)

IV. Explain in words how your answer to part III would be different if the toll was charged only during crowded times of day (commute hours)? (4 points)

V. Explain in words how your answer to part III would be different if the toll was on a rural interstate rather than an urban bridge. (4 points)