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Suppose the initial marginal cost per mile traveled by car is $.32 and the initial mileage for the typical river is 1,000 per month. Assume
Suppose the initial marginal cost per mile traveled by car is $.32 and the initial mileage for the typical river is 1,000 per month. Assume the elasticity of miles driven with respect to the price is -1.0. Suppose the government uses a per-mile tax to internalize the environmental externalities associated with car travel (for air pollution and CO2). Illustrate the effects of the tax on equilibrium miles driven, including a new value for miles driven.
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