Exhibit 10-2 Carbon emissions as an externality

-Assume that the private supply is 'Supply 1' and the supply including tax is 'Supply 2' (Exhibit 10-2).What is the reduction in the output after the carbon tax was imposed?

Question

Exhibit 10-2 Carbon emissions as an externality
 
-Assume that the private supply is 'Supply 1' and the supply including tax is 'Supply 2' (Exhibit 10-2).What is the reduction in the output after the carbon tax was imposed?

Quizplus · Accepted Answer

The reduction in output after the carbon tax is imposed is the difference between the quantity supplied before the tax (Supply 1) and the quantity supplied after the tax (Supply 2). If the reduction is 10 units, then the correct answer is 10 units.

Exhibit 10-2 Carbon Emissions as an Externality