3. e supply and demand sedules for gasoline in the country of Drivia are given in the table below.

Initially, there are no taxes on gasoline. Assume that the externality damage from consuming gasoline in Drivia is 60 cents per gallon.

a. Draw a supply-and-demand graph for gasoline in Drivia. What are the equilibrium price and quantity?

b. Illustrate the externality damage in your graph. How mu is externality damage (in dollars per day)?

c. What is the optimal Pigovian tax on gasoline in Drivia?

d. If Drivia instituted an optimal Pigovian tax on gasoline, what would the new equilibrium price and quantity be? Create a new graph illustrating the impacts of the tax.

e. How mu would Drivia collect in tax revenues with an optimal Pigovian tax? Illustrate this on your graph.

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Price per gallon Quantity supplied (gallons per day) Quantity demanded (gallons per day) $3.00 60,000 90,000 $3.20 70,000 85,000 $3.40 80,000 80,000 $3.60 90,000 75,000 $3.80 100,000 70,000 $4.00 110,000 65,000 $4.20 120,000 60,000