Narrbegin Exhibit 10.2 Carbon emissions as an externality
-In Exhibit 10.2, which of the following is likely to be true? Assume that the private supply is 'Supply 1' and the supply including carbon tax is 'Supply 2'.

Question

Narrbegin Exhibit 10.2 Carbon emissions as an externality  
-In Exhibit 10.2, which of the following is likely to be true? Assume that the private supply is 'Supply 1' and the supply including carbon tax is 'Supply 2'.

Quizplus · Accepted Answer

Exhibit 10.2 shows the external cost of carbon emissions which is not reflected in the private supply (Supply 1). The carbon tax is designed to shift the supply curve to the left (Supply 2) and reflect the true social cost of carbon emissions. This will increase the price per unit and reduce the quantity demanded, leading to a lower level of carbon emissions. Therefore, option A is incorrect as global warming is a global problem and should be addressed through policy measures like carbon tax. Option C is incorrect as the exhibit only shows the increase in external cost and not the actual price. Option D is also incorrect as the exhibit does not provide any information about the relationship between demand and supply.