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2. Your government has decided to limit the production of large gas guzzlers. The government Health Department has determined that the public is better served

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2. Your government has decided to limit the production of large gas guzzlers. The government Health Department has determined that the public is better served by the cleaner air that less gas guzzlers will provide. So the government decides to levy a $100,000 tax on producers of gas guzzlers. (Hint: this is an increase in the MC curve of the producers of $100,000 at all levels of production). a. Show with a simple supply and demand diagram the free-exchange market for Gas Guzzlers before the imposition of the tax. Label the total area of welfare to the community from this market, and label the welfare that goes to the producer and to the consumer. b. Show what happens to the diagram with the imposition of the tax. Label the new price and quantity impact, and show how TOTAL welfare changes if at all after the imposition of the tax

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