Referencing Styles : Not Selected 1.Suppose the government is considering an increase in the toll on a certain stretch of highway from $.40 to $.50. At present, 50,000 cars per week use that highway stretch; after the toll is imposed, it is projected that only 40,000 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 net cost to society attributable to the increase in the toll? b) Be … View More 1.Suppose the government is considering an increase in the toll on a certain stretch of highway from $.40 to $.50. At present, 50,000 cars per week use that highway stretch; after the toll is imposed, it is projected that only 40,000 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 net cost to society attributable to the increase in the toll? b) Because of the reduced use of the highway, the government would reduce its purchases of concrete from 20,000 tons per year to 19,000 tons per year. Thus, if the price of concrete were $25 per ton, the government’s cost savings would be $25,000. However, the government’s reduced demand for concrete causes its market price to fall from $25 per ton to $24.50 per ton. Moreover, because of this reduction in price, the purchases of concrete by non-government buyers increase by 300 tons per year. Assuming that the factor market for concrete is competitive; can the government’s savings of $25,000 be appropriately used as the measure of the social value of the cost savings that result from the government purchasing less concrete? Or would shadow pricing be necessary? 2.A new chain of garages specializing in quick (under 5 minutes) oil-changes for automobiles has opened in the county. It charges $25 per oil change and currently sells 10,000 oil changes per year. It appears that the marginal cost of the firm is approximately $25 per oil change and independent of the number of changes sold. Unfortunately, the chain uses a process that results in considerable leakage of hydrocarbon emissions into the air. No state or federal regulations prevent these emissions, and the county does not have direct regulatory authority. It can, however, impose a tax on oil changes using this process. An analysis presented by an expert panel indicates that the social cost of the emissions is $10 per oil change. Economists have estimated that the price elasticity of demand for the quick oil changes is -.5 at the current price and quantity assuming a linear demand schedule. a. Illustrate the market in a fully labeled graph.? b. Imagine that the county imposes a $10 tax per oil change on the chain. Calculate the annual net benefits of this tax. 3.The following questions all concern natural monopolies:? a) Use a diagram to illustrate the deadweight loss that, in the absence of government intervention, results from natural monopolies.? b) Briefly describe two government policies that can partially or entirely eliminate the deadweight loss resulting from natural monopolies.? c) Using your diagram, indicate the benefit 4.Consider a low-wage labor market. Workers in this market are not presently covered by the minimum wage, but the government is considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $5 hourly wage. Suppose all workers in the market are equally productive, the current market clearing wage rate is $4 per hour, and that at this market clearing wage there are 600 employed workers. Further suppose that under the minimum wage legislation, only 500 workers would be employed and 300 workers would be unemployed. Finally, assume that the market demand and supply schedules are linear and that the market reservation wage, the lowest wage at which any worker in the market would be willi