Reference no: EM131256064

Assignment

In 1973, the US sided with Israel in the Yom Kippur War, causing members of the Organization of Petroleum Exporting Countries (OPEC) to place an embargo on oil to the US. The result was a doubling in the price of oil in the US, which adversely affected the costs of home heating, gasoline, plastics, etc. In 1974, the US Congress legislated a national maximum speed limit of 55 MPH to conserve on gasoline and diesel fuel. This speed restriction was in place until 1995.

Your task is to find the marginal cost and marginal benefit of instituting a national speed limit of 55 MPH in the US. Think about the benefits associated with reduced speed on the nation's highways and try to put a dollar figure on them. Similarly, consider the costs in dollar terms. Below are reliable figures that may assist you. Please calculate the everything in 1984 daily terms. Bring a hard copy of your answer to class.

Use the following figures pertaining to conditions in 1984 to estimate the daily cost and benefit of having the speed limit in place:

- 1 billion more hours spent in cars annually due to speed limit
- $17,975 average annual income in the US
- $1.30 price for a gallon of gasoline
- 167,000 barrels of gas saved per day from driving at 55 MPH compared to higher speed limits
- 42 gallons = 1 barrel

You can arrive at a rudimentary net benefit or net cost per day of the speed limit restriction in 1984 based on the bullet points above, but what other issues would you seek to include? What relevant monetary figures for would you need? See if you can find them.