Reference no: EM132444953

Need assistance answering these three questions please!

A key skill in economics is the ability to use the theory of supply and demand to analyze specific markets. In this assessment, you will demonstrate your ability to analyze the effects of several "shocks" on the market for first class mail (e.g., letters).

1. Carbon tax: Suppose the government imposes a carbon tax that increases the fuel costs at gas stations.
   1. Will this affect the supply or the demand for gasoline? Why? Which determinant of demand or supply is being affected?
   2. Show graphically with before and after curves on the same axes.
   3. How will this change the equilibrium price and quantity of gasoline? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
2. Electric cars: Now consider the invention of cheap electric vehicles.
   1. Explain how you imagine the invention of cheap electric cars would affect the demand for gasoline? Why? Which determinant of demand or supply would be affected?
   2. Show graphically with before and after curves on the same axes.
   3. How will this change the equilibrium price and quantity of gasoline? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)
3. Combine Cases 1 and 2: Suppose that a carbon tax is imposed and electric cars become common.
   1. What will the combined impact be on the equilibrium price and quantity of gasoline?
   2. Explain your reasoning and show graphically. Remember quantity falls, but change in price is indeterminate, since it depends on which curve shifts more.