A carbon tax is a tax on energy sources, which emit carbon dioxide. It is a pollution tax, which some economists favour because they tax a bad quite an than a good (such as income). Carbon taxes address a oppose externality. Externalities arise when an individual production or consumption natural action imposes prices or benefits (MPB, MSB) on others. If the effect is harmful, then we chide about the negative externality. This means that there is an external be that must be added to the private cost of the producer (MPC) or consumer to reflect the full cost to society (MSC).
Inserting a carbon tax would raise a firms cost and shifts the supply curve for the product vertically upwards by the do of the tax. Because of the curve, fewer products will be supplied at all(prenominal) price.
A carbon tax is a type of detail tax. This is a fixed amount of tax that is imposed upon a product, for example, a tax of AUS$20 per unit. It thus had the effect of switch the supply curve vertically upwards by the amount of the tax, in this case by AUS$20. S is the original supply curve and S+tax is the curve after the tax is imposed.
After imposing a carbon tax, we express the diagrams shown on a lower floor:
Figure [ 1 ] (A)
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The market is in equilibrium, with Q being supplied and demanded at the price of P. After the tax (XY) is imposed, the supply curve shifts vertically from S1 to S1+tax. On diagram A, the producers would like to raise the price to P2, and blend in on the cost of tax to the consumers. However, at that price, there is tautological supply, and the price has to fall until a new equilibrium is reached.
In diagram A, the price of the product rises from P to P1, which is their share of the tax. Producers right off receive C per unit, after paying XY (tax) to the government....If you want to get a full essay, order it on our website: Ordercustompaper.com
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