What are benefits and costs of infrastructure improvements

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Reference no: EM1354302

The government finds that it would cost $70 to improve the transportation infrastructure to reduce the supply curve to P = 2 + 3Q. This amount ($70) must be raised from either taxing the surplus of the producers or taxing the income of the consumers or taxing both. The government declares that it will follow a policy of free trade - but it will collect taxes worth $70 to improve the infrastructure. Which of the following is possible? Assume that the benefits and costs of infrastructure improvements are for one time only - i.e., ignore all long run implications.

a. The producers will be willing to pay an additional maximum tax of $40 to improve infrastructure - so the rest of the money ($30) must come from consumers.

b. It is possible that the producers may be willing to pay a tax of $70 to improve infrastructure even if consumers are not willing to pay for any of it.

c. The consumers will be willing to pay 50% of the infrastructure cost (i.e., $35).

d. No one would not be willing to pay any taxes since taxes discourage production and consumption.

e. None of the above.

Reference no: EM1354302

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