Global Warming and Case Study: Carbon Taxes Burning fossil fuels such as gasoline, coal, and heating oil releases gases containing carbon into the atmosphere. These "greenhouse" gases are widely believed to contribute to global warming. To reduce this problem and raise tax revenues, many environmentalists and political leaders have proposed levying a carbon tax on the carbon content in fossil fuels. After dropping from the Paris Treaty in the Trump Administration, the current Biden Administration has rejoined the world community in taking steps to mitigate the negative impacts. When governments impose carbon taxes on gasoline, managers of firms that sell gasoline need to think about how much of the tax they have to absorb and how much they can pass through to firms and consumers who buy gasoline. Similarly, managers of firms that purchase gasoline must consider how any pass-through charges will affect their costs of shipping, air travel, heating, and production. This pass-through analysis is critical in making short-run managerial decisions concerning how much to produce, whether to operate or shut down, and how to set prices and make long-run decisions such as whether to undertake capital investments. Questions: 1. Using concepts from Chapter 14, evaluate this problem relying on externalities, social cost, demand and supply and demand analysis. Using the supply and demand curves, show the impact of a carbon tax on producers of fossil fuels. 2. A carbon tax will likely harm some firms and industries but also creates opportunities for others. Which industries are likely to benefit and which industries are likely to lose from a Carbon Tax? 3. How will a carbon tax impact the overall demand for automobiles? Which segment of the automobile market will hurt and which will benefit from this tax? Why? 4. What will be the effect of imposing a carbon tax on the overall price of gasoline? How is the quantity demanded varies across the purchase of gasoline? Why? What impact will this tax on government revenues? In which cases, it may be higher and, in some cases, it may be neutral? Why? 5. Besides the automobile industry, which other industries are likely to be impacted by the Carbon tax