Macroeconomics
Macroeconomics
11th Edition
ISBN: 9781260506891
Author: Colander
Publisher: MCG
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Chapter 5, Problem 11IP
To determine

Impact of charging insurance from per car per year to tax on gas.

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With the help of appropriate diagrams, explain how a tax can be used to reduce the consumption of a harmful product such as cigarettes.
In his State of the Union address in 2003, President Bush supported the idea of changing from the use of internal combustion engines to fuel cells based on hydrogen as a way of reducing air pollution and the emission of greenhouse gases. Fuel cells are nonpolluting because they only emit water vapor. President Bush proposed having the government subsidize research and development of hydrogen fuel and fuel cell technology. The president did not propose raising taxes on gasoline as a way of encouraging the use of fuel cells and reducing greenhouse gases. Currently, hydrogen is more expensive than gasoline. Would an increase in the tax on gasoline encourage the development of hydrogen-based fuel cell technology for automobiles?
One rationale for imposing taxes on alcohol consumption is that people who drink alcohol impose negative spillovers on the rest of society—for example, through loud and unruly behaviour or intoxicated driving. If this rationale is correct, in the absence of governmental taxation, will people tend to consume too much, too little, or the right amount of alcohol?
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