4) Driving an automobile generates many negative externalities. For example, driving creates pollution, since cars emit noxious chemicals when driven. Another example is traffic congestion; when one person drives, that increases traffic congestion for everyone else. Governments may try to limit the effect of these externalities in a variety of ways.

A) The two negative externalities listed above, air pollution and traffic congestion, are more and less severe at different times or in different places. What conditions make each of these more or less severe.

B) Discuss the effectiveness of each of the following policies intended to reduce the amount people drive or the severity of the external damage they create.

1) Usa a supply and demand graph for gasoline to analyze the effect of a $1.00 per gallon tax on gasoline. Then explain how this affects the negative externalities created by driving.

2) Show on a supply and demand graph for car licenses the effect of an increase in the annual licensing fee from $50 to $100 a car. Explain how this effects the negative externalities created by driving.

3) Usa a marginal benefit/marginal cost cost graph for a bridge use to analyze the effect of a toll on a popular and crowded bridge, given that the toll is charged at all times of the day. Assume that the marginal cost for using the bridge is just the toll charge. Explain how this effects the negative externalities created by driving.

4) Explain in words how your answer to number 3 would be different if the toll was charged only during crowded times of the day (commute hours)?

5) Explain in words how your answer to part 3 would be different if the toll was on a rural interstate rather than an urban bridge.