Question
The Market Effects of a Carbon Tax. Consider the market for gasoline. In the initial equilibrium, the price is $2.00 per gallon and the quantity
The Market Effects of a Carbon Tax. Consider the market for gasoline. In the initial equilibrium, the price is $2.00 per gallon and the quantity is 100 million gallons. The price elasticity of supply is 1.0. Suppose a carbon tax shifts the supply curve upward by $0.34 and to the left by 17 percent.
a. Use a graph to show the effects of the tax on the equilibrium price and quantity of gasoline.
b. After reviewing the price-change formula in the earlier chapter on elasticity, compute the new price and quantity. The new price is $__________ per gallon and the new quantity is ________million gallons.
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