Question

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 45,000 cars per week will use the highway stretch. 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

Answer 1

Answer:

$250 is the change in social surplus attributable to the increase in the toll

Explanation:

Suppose the government increase in toll on a certain stretch of highways by this caused a dead-weight loss occur and then resulting full in the number of cars using the highway.

Dead-weight loss = (0.5) (0.50-0.40) (50,000-45,000)

Dead-weight loss = 0.5 * 0.10 * 5000

Dead-weight loss = $250

The increase paid by other remaining drivers (0.50-0.40)(40,000) can be viewed as transfer from drivers to the government.