Consider the demand for CO2 allowances in the European Union. The supply of allowances is fixed, and the initial price is $20 per ton. Suppose that dry weather in the Nordic countries increases the...

Consider the demand for CO2 allowances in the European Union. The supply of allowances is fixed, and the initial price is $20 per ton. Suppose that dry weather in the Nordic countries increases the demand for allowances by 6 percent, and the price elasticity of demand for permits is 2.0. Predict the new equilibrium price, and illustrate with a graph. (Related to Application 4 on page 694.)