The supply and demand for gasoline are given by: Demand: P = 100 40 Supply: P = 0.1 +0.05Q Suppose the marginal external costs of gasoline consumption (in dollars per unit of gasoline) are $1.5 per gallon. Then, the total external costs of gasoline consumption are 1.5*Q.

a.) Add as one column in Excel, the Pareto optimal allocation (after accounting for total external costs).

b.) Add as a column in Excel the total external costs under the Pareto optimal allocation.

c.) Add as a column in Excel the total wealth under the Pareto optimal allocation.

d.) Add as two columns in Excel (one for price, one for quantity), the no policy competitive equilibrium.

e.) Add as a column in Excel the consumer surplus under the no policy competitive equilibrium from d.

f.) Add as a column in Excel the producer surplus under the no policy competitive equilibrium from d.

g.) Add as a column in Excel the total external costs under the no policy competitive equilibrium from d.

h.) Add as a column in Excel the total wealth under the no policy competitive equilibrium from d.

i.) Consider a Pigouvian tax of t on gasoline. Construct a column of values of t from 0.1 to 3 in Excel.

j.) Add as three columns in Excel, the after tax competitive equilibrium as a function of t, for each value of t.

k.) Add as a column in Excel the consumer surplus under the after tax competitive equilibrium from j.

L.) Add as a column in Excel the producer surplus under the after tax competitive equilibrium from j.

m.) Add as a column in Excel the total external costs under the after tax competitive equilibrium from j.

n.) Add as a column in Excel the total welfare under the after tax competitive equilibrium from j.

0.) Add as a column in Excel the change in total external costs due to the tax relative to the no tax competitive equilibrium, ATECCE.

p.) Add as a column in Excel the change in total external costs due to the tax relative to the Pareto optimal equilibrium, ATECPO.

q.) Add as a column in Excel the efficiency costs due to the presence of the tax, EFC (this is just the standard DWL due to the tax, ignoring the change in total external costs).

r.) Add as a column in Excel the change in total wealth due to the tax relative to the no tax competitive equilibrium, AWCE.

s.) Add as a column in Excel the change in total wealth due to the tax relative to the Pareto optimal allocation, AWPO.

t.) In Excel, plot ATECCE on the y-axis and t on the x-axis.

u.) In Excel, plot ATECPO on the y-axis and t on the x-axis.

v.) In Excel, plot EFC on the y-axis and t on the x-axis.

w.) In Excel, plot AWCE on the y-axis and t on the x-axis.

x.) In Excel, plot AW PO on the y-axis and t on the x-axis.

y.) Compare your results from t and u and explain what you observe.

z.) Compare your results from w and x and explain what you observe.

aa.) For what value of t does the Pigouvian tax lower welfare?

bb.) For what value of t does the Pigouvian tax get closest to the Pareto optimum?

cc.) Given your optimal Pigouvian tax from bb and your results from u, v, and x, explain how efficiency costs and the change in total external costs equate to AWPO.