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Evaluating three legislative proposals

In your first position as a Finance manager you have been given responsibility for reducing use of residential heating fuel in the state. You must select one of three legislative proposals to accomplish this goal

a. Tax residential heating fuel that would raise the price to $2.00 per gallon;
b. Offer a subsidy on natural gas that would reduce the net price of natural gas by $1 per cubic foot.
c. Impose a tax on electricity that effectively raises its price by $5 per KWH.

The following analysis is given to you to assist you in selecting the best strategy

Summary of Regression Output
Coefficient Standard Error
Intercept 136.96 43.29
Price of residential Fuel -96.69 29.09
Price of Natural Gas 43.88 9.17
Price of Electricity -11.92 8.35
Income -0.05 0.36

Based upon the regression output, rank the three possible alternatives and justify your ranking

Solution Preview

Let us analyze the effect of each of the proposal on the consumption of residential heating fuel in the state.

a) Tax residential heating fuel that would raise the price to $2.00 per gallon;

Coefficient of Price of residential Fuel =-96.69
Change in price of residential fuel=+$2 per gallon
Change in consumption of residential fuel = ...

Solution Summary

Solution ranks the three possible alternatives on the basis of regression results provided.

$2.19