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What are the equilibrium price and quantity

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Reference no: EM131581488

Question: The supply and demand schedules for gasoline in the country of Drivia are given in the table below. Initially, there are no taxes on gasoline. Assume that the externality damage from consuming gasoline in Drivia is 60 cents per gallon

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a. Draw a supply-and-demand graph for gasoline in Drivia. What are the equilibrium price and quantity?

b. Illustrate the externality damage in your graph. How much is externality damage (in dollars per day)?

c. What is the optimal Pigovian tax on gas in Drivia?

d. If Drivia instituted an optimal Pigovian tax on gasoline, what would the new equilibrium price and quantity be? Create a new graph illustrating the impacts of the tax.

e. How much would Drivia collect in taxes with an optimal Pigovian tax? Illustrate this on your graph.

Reference no: EM131581488

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