Social cost is a measure of the opportunity cost of all resources used in producing a good

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Question:

Social cost is a measure of the opportunity cost of all resources used in producing a good or a service. Private cost is a measure of the opportunity cost incurred by the individual or firm when make a decision. One resource use where there is a large gap between the public and private cost is the use of public motorways. (For example, one additional driver on the road imposes a cost, in terms of increased congestion, on all the other drivers on the road. It is likely that the sum of the costs imposed by one additional driver on all of the commuters using the road exceeds the benefits that the additional driver receives from using the road as opposed to a alternative method of commuting).

a. Give all the private costs of commuting by car to work/school/etc. Remember that private costs are all the opportunity costs that a driver incurs when operating a car.

b. One private cost of commuting via car is the costs of fuel. How much of the retail cost of a gallon of fuel is comprised of state and local taxes (check the EIA website)? When the price of a good includes a large tax component, only the non-tax part of the price represents real opportunity costs. In Pennsylvania, what part of the price of fuel includes real opportunity costs?

c. Give all the social costs associated with commuting by car. Remember that social costs are the opportunity costs of commuting, regardless of who incurs the costs. For example, the costs of operating a car are a social cost. They are also a private cost. In this example they are the same, but this is not the case always.

d. When there are externalities, the social costs are different than the private costs. We call the social costs of externalities their external costs and social costs equal the external costs plus the private costs. List at least four externalities for commuting by car, and explain why the social costs may be greater than the private costs. Are these external costs always non-zero? Explain why or why not.

e. What kinds of policies are in place at the Federal and state level that reduce the number of individuals who choose to commute by car?