Carbon taxes on fossil fuels would increase the cost of supply chain services like transportation and processing in the bakery industry. Wheat producers would be exempt from the carbon tax because their crops provide a carbon offset.

(a) Draw and explain an appropriate economic model(s) that illustrate(s) the impact of a new carbon tax on retail and wholesale prices in the bread supply chain.

(b) Explain the net economic impact on the bread supply chain, if the government cut income taxes to reduce the impact of carbon taxes on bread consumers.