If government regulations increase the cost of producing gasoline while at the same time government regulations reduce the cost of driving a relatively inefficient sport utility vehicle (SUV),

Question

Quizplus · Accepted Answer

When the cost of producing gasoline increases, the price of gasoline is expected to increase due to the increase in production costs. However, if the government regulations reduce the cost of driving an SUV, people may be more inclined to purchase and drive less fuel-efficient vehicles, which can increase the total consumption of gasoline. Therefore, while the price of gasoline will increase, the total consumption can increase, decrease, or stay the same depending on the extent of the reduction in driving costs for SUVs. Consequently, the best choice is C, i.e., the price of gasoline is expected to increase, whereas the total consumption of gasoline can increase, decrease, or stay the same.

If Government Regulations Increase the Cost of Producing Gasoline While