Assignment 6.
If the marginal benefit curve for gasoline is Q = 30 – 1.5*P and the marginal cost curve is Q = 20 + 0.5*P. Price is in dollars and quantity is in millions of gallons.
What is the market price and quantity of sales? (2 points)
If each gallon of gasoline produces $2.00 of carbon externalities and we put a Pigouvian carbon tax in place to correct this externality, what is the new market equilibrium price and quantity sold? (2 points)
What is the amount of revenue that would be generated with this carbon tax from this market? (2 points)
If we use this revenue to build sea walls near coastal cities, what type of strategy does this represent? (circle one, 1 point)
a. Mitigation b. Abatement technology c. Adaptation
Most economists do not think the double dividend would happen in the US. Name a reason why it might happen in a developing nation? (max one line, 1 point)
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A long haul trucker is deciding between being a stay-at-home parent and continuing to work.
|
Pre carbon tax |
Post carbon tax |
|
|
Pre-tax income |
$40,000 |
$30,000 |
|
Cost of child care (per child) |
$15,000 |
$18,000 |
6) Before the carbon tax, his income tax is 50%. Will he WORK or will he become a STAY-AT-HOME parent if he has 1 child? (circle one, 1 point)
7) Will he WORK or be a STAY-AT-HOME parent if he has 2 children? (1 point)
8) Looking at the post-carbon-tax column, his pre-tax income is lower with the carbon tax. What major input to trucking was taxed that reduced this income? (1 point)
9) If the income tax is cut to 33.3% because carbon taxes facilitated cutting income taxes, what will his post-carbon tax net income be? (Remove the income taxes from his pre-tax income.) Will he WORK or STAY-AT-HOME if he has 1 child? (2 points)
10) What change on this table is the ‘tax-interaction effect’? How much is it in $? (1 point)
11) If the tax-interaction effect dominates and all we get is the first dividend, does this mean there is no point to using the revenues to reduce labor taxes and it is best to spend the money on something else? Explain. (max two lines, 1 points)
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12) If someone sells a carbon offset by planting a tree but then later chops that tree down, what do we call this problem? (1 point) _________________________
13) TRUE / FALSE: Because of the externalities associated with gasoline, it is rarely subsidized by governments (1 point).
14) TRUE / FALSE: Diesel powered cars, like those involved in the VW scandal, tend to emit little carbon but a lot of local pollutants. (1 point)
15) TRUE/ FALSE: Fuel economy standards also reduce external costs of congestion and accidents. (1 point)
