Question 1 - Canada's government imposes a tax on carbon. In 2022, this amounts to about 11 cents per lire of gasoline. The demand curve for gasoline is inelastic, but the supply curve for gasoline is relatively elastic. 1a) Create an illustration (not to scale) of what the market for gasoline looks like with an 11 cent per litre tax. You will need to draw a demand curve, two supply curves (one before tax and one after tax), consumer price, producer price, consumer surplus, producer surplus, government revenue and deadweight loss. Label this diagram 'Gasoline market with federal carbon tax' (1 point) 1b) Explain how the Federal carbon tax affects consumer and producer surplus in the market for gasoline. Based on your illustration, which of consumers or producers bears the larger burden of the tax? ( 1 point) 1c) Explain (with an illustration) how the carbon tax might result in larger long run reductions in gasoline consumption than are observed in the short run. ( 1 point) 1d) Do you think that the imposition of a carbon tax on gasoline is a good way to raise revenues for the government? If so, explain why and assess whether carbon taxes should be increased (assuming the government will use the revenues to reduce other taxes, rather than funding public spending). ( 1 point ). Question 2a ) Provide a profile of a market that is perfectly competitive (or close to it). Your example should be a specific example from the real world. You should explain: - What is the product in this market? - When and where is this product provided to customers? - How homogenous is the product? - The information that consumers and producers have about product prices and product characteristics from each producer - How easy is it for firms to enter or exit the industry? - How large are all the firms relative to the size of the market they serve? - Do firms have any ability to charge a price that is different than the market price? (2 voints) 2b) Draw a diagram (not to scale) illustrating demand and supply (show equilibrium prhe and quantity as well as producer and consumer surplus in this market. Explain why this is the market equilibrium and indicate what it tells us about overall economic welfare from this market. (2 points) 2c) Given the diagram you drew for question 2b, draw a diagram of the cost curves, output quantity and economic profits of an individual firm in this market. Based on real world evidence you can find about this market explain whether you believe that its firms have positive, negative or zero economic profits. (2 points)