Suppose the government is considering an increase in the toll on a certain stretch of highway from $.40 to $.55. At present, 60,000 cars per week use that highway stretch; after the toll is imposed, it is projected that only 55,000 cars per week will use the highway stretch.

a. Assuming that the marginal cost of highway use is constant (i.e., the supply schedule is horizontal) and equal to $.40 per car, what is the change in social surplus attributable to the increase in the toll? Explain your answer.

b. What would we the change in social surplus if the state decided to make the highway free of charge, assuming the marginal cost remains at $.40 per car? Explain your answer.

c. Of the three policiesa $.40 toll, a $.55 toll, and $0 tollwhich is most efficient? Explain your answer.

d. People defending the $.55 toll have argued that it is the best approach because a toll, which is a type of user fee, does not come from taxes levied on citizens. Therefore, the revenue generated from the toll should be a multiplied by the marginal cost of public funds. Do you agree or disagree?