Question
Suppose for an average car owner gasoline (G) and biofuel (B) are perfect substitutes to fuel her car. Her utility is represented by U(G,B) =
Suppose for an average car owner gasoline (G) and biofuel (B) are perfect substitutes to fuel her car. Her utility is represented by U(G,B) = 3G+4B. Currently, the price of gas is $2 per liter and the price of biofuel is $4 per liter. To reduce the air pollution from burning gasoline in the cars, government decides to use a hybrid policy: levy $t tax per liter of gasoline consumption and pay $s subsidy per liter to biofuel consumption. Which combination of tax and subsidy (t,s) will "not" make an average car owner indifferent to choose between biofuel and gasoline?
- A.(0 , 1.33)
- B.(1 , 0)
- C.(0.25 , 1)
- D.(0.75 , 0.25)
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