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Homework answers / question archive / Question 2) Some observers have argued that importing oil makes the USA hostage to the policies of Saudi Arabia and other countries in Middle East
Question 2) Some observers have argued that importing oil makes the USA hostage to the policies of Saudi Arabia and other countries in Middle East. This complicates US foreign policy. -Explain why an externality is present in this situation.Propose a Pigouvian tax deal with the externality. Some economists want to curb domestic gasoline consumption by adopting tredable gasoline rights TGR by giving people debit card. using uo one TGR card as well as paying money. In 2006 Americans will buy 110 billions gallons of gasoline.To reduce total consumption 5%,government will cut the number of TGRs to 104,5 billion. Draw a diagram to illustrate how the price of the TGR would be determined.Suppose that the market price per voucher were 75 cent.How would this change the opportunity cost of buying a gallon of gasoline?
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