Exhibit 17-7 Exhibit 17-7 represents the consumer market for driving their automobiles.If drivers base their driving decisions only on the marginal private cost of driving their cars, how many miles will they drive?

Question

Exhibit 17-7  Exhibit 17-7 represents the consumer market for driving their automobiles.If drivers base their driving decisions only on the marginal private cost of driving their cars, how many miles will they drive?

Quizplus · Accepted Answer

The marginal private cost of driving a car includes the cost of gasoline and maintenance. At a price of $2.50 per gallon, the marginal private cost is equal to $0.20 per mile (given as the slope of the MPC curve). At this price, the quantity demanded is equal to the quantity supplied at a quantity of 4,000 miles (where the MPC curve intersects with the MSB curve). Therefore, drivers will drive 4,000 miles if they base their driving decisions only on the marginal private cost.

Exhibit 17-7 Exhibit 17-7 Represents the Consumer Market for Driving