Reduce the total demand for residential heating fuel

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Reference no: EM13853238

As newly appointed “Energy Czar,” your goal is to reduce the total demand for residential heating fuel in your state. You must choose one of three legislative proposals designed to accomplish this goal: (a) a tax that would effectively increase the price of residential heating fuel by $1; (b) a subsidy that would effectively reduce the price of natural gas by $3; or (c) a tax that would effectively increase the price of electricity (produced by hydroelectric facilities) by $4. To assist you in your decision, an economist in your office has estimated the demand for residential heating fuel using a linear demand specification. The regression results are presented below. SUMMARY OUTPUT Regression Statistics Multiple R 0.76 R Square 0.57 Adjusted R Square 0.49 Standard Error 47.13 Observations 25 Analysis of Variance Degrees of Freedom Sum of Squares Mean Square F Significance F Regression 4 60936.56 15234.14 6.86 0.03 Residual 20 44431.27 2221.56 Total 24 105367.84 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Intercept 136.96 43.46 3.15 0.01 50.60 223.32 Price of Residential Heating Fuel -91.69 29.09 -3.15 0.01 -149.49 -33.89 Price of Natural Gas 43.88 9.17 4.79 0.00 25.66 62.10 Price of Electricity -11.92 8.35 -1.43 0.17 -28.51 4.67 Income -0.050 0.3500 -0.14 0.90 -0.75 0.65 Based on this information, which proposal would you favor? A subsidy that would effectively reduce the price of natural gas by $3. A tax that would effectively increase the price of electricity by $4. A tax that would effectively increase the price of residential heating fuel by $1.

Reference no: EM13853238

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