Problem 1.

(Carbon tax.) Mr. Smith drives his car 15,000 miles a year. His car's fuel economy is 25 miles per gallon (MPG) of gasoline.

Problem 1. (Carbon tax.) Mr. Smith drives his car 15,000 miles a year. His car's fuel economy is 25 miles per gallon (MPG) of gasoline. A. Is Mr. Smith more or less an average American driver? Is Mr. Smith's car more or less average in terms of its fuel economy? B. How many gallons of gasoline does Mr. Smith buy every year? C. A carbon tax of $100 ton/C is introduced. If the current price of gasoline is $2.50/gallon, by how much will the tax change this price? D. The tax was introduced on 31 Dec. 2020, and is retroactive, so Mr. Smith must pay the tax for the gasoline he bought in 2020. How much will he pay in tax for the year 2020? E. It is now 2021, and Mr. Smith is aware of the tax and of its effect on the price of gasoline. If the price elasticity of his gasoline demand is -0.3, but how much will he curtail his consumption of gasoline? How many miles will he drive in 2021? (Assume for simplicity that the pre-tax price of gasoline is $2.50/gallon throughout 2021 .) F. How many tons of C02 did Mr. Smith's car emit in 2020? How many will it emit in 2021