Problem 3.

(welfare consequences of a carbon tax) Suppose the monthly demand for electricity for residential consumption for the average household

Problem 3. (welfare consequences of a carbon tax) Suppose the monthly demand for electricity for residential consumption for the average household is E=on + [3*Price, where oc=3000 and B = -20,000. A. How much does the average household consumer per month at the current price of SID/kWh? B. If the C02 content of electricity is 1 lb. per kWh, how many metric tons of C02 does the household generate in a year? C. If the same carbon tax as in problems 1 and 2 is introduced, how much tax will the household pay per kWh of electricity? What will be the new quantity demanded per month? D. Calculate the loss of consumer surplus the average household will experience when going from $10/kWh to the new price inclusive of the tax