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 demand...

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 demand is 0.70, and 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.

c. Consumers pay $
of the $0.34 tax and producers pay the remaining $
 of the tax.