1.1.2 [related to the Economics in Practice on p. 371] The kingdom of Freedonia is divided into two countries: East Babalu and West Babalu. In an effort to reduce carbon dioxide emissions, the kingdom has enacted a carbon tax on all electricity providers. In East Babalu, a gloomy country with cloudy skies and rain every day of the year, 90 percent of households rely on electricity to power their homes.

In West Babalu, a tropical paradise where the sun shines bright every day, only 10 percent of households get power from electricity providers, with the rest using solar panels to directly power their homes. Use supply and demand curves to show the effect of this carbon tax on the residents of both East Babalu and West Babalu, and explain which country’s residents will bear a greater burden of the tax. Assume that all electricity providers in the kingdom of Freedonia will face similar cost increases as a result of the carbon tax.