Question
Answer the problem set without limitation of page and word. (From Harris and Roach, Environmental and Natural Resource Economics) Suppose that the annual consumption of
Answer the problem set without limitation of page and word.
(From Harris and Roach, Environmental and Natural Resource Economics) Suppose that the annual consumption of an average American household is 1,000 gallons of gasoline and 200 Mcf (thousand cubic feet) of natural gas. Using the figures given in the below table on the effects of a carbon tax, calculate how much an average American household would pay per year with an added tax of $100 per ton of carbon dioxide if there was no initial change in quantity demanded. (Assume that the before-tax market prices remain unchanged.) Then, assuming a short-term demand elasticity of -0.1 and a long-term elasticity of -0.5, calculate the reductions in household quantity demanded for oil and gas in the short and long term. If there are 100 million households in the United States, what would be the revenue to the U.S. Treasury of such a carbon tax, in the short and long term? How might the government use such revenues? What would the impact be on the average family? Discuss the difference between the short-term and long-term impacts.
Impact of Carbon Tax on Retail Price of Gasoline kg CO, per gallon 8.89 Tonnes CO, per gallon 0.00889 $/gal., $50/tonne tax $0.45 S/gal., S100/tonne tax $0.89 Retail price (2021) per gallon $2.20 % increase, $50/tonne tax 20.5% % increase, $100/tonne tax 41% Impact of Carbon Tax on Retail Price of Coal kg CO, per short ton 2100 Tonnes CO, per short ton 2.1 $/short ton,-SS 0/tonne tax S105 $/short ton, $100/tonne tax $210 Retail price (2021) per short ton $40 % increase, $50/tonne tax 220% % increase, $100/tonne tax 440% Impact of Carbon Tax on Retail Price of Natural Gas kg CO, per 1,000 cu. ft. 53.12 Tonnes CO, per 1,000 cu. i 0.05312 $/1,000 cu. ft., $50/tonne tax $2.66 $/1,000 cu. ft., $100/tonne tax $5.31 Retail price (2020) $12 % increase from $50/tonne tax 222% % increase from $100/tonne tax 44.4% Source: Carbon emissions calculated from carbon coefficients and thermal conversion factors available from the U.S. Department of Energy. All price data from the U.S. Energy Information Administration. Note: tonne = metric ton, equal to 1.1 U.S. short tonsStep by Step Solution
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