Problem
Many states are now imposing severance taxes on resources being extracted within their borders. In order to understand the effect of these on the allocation of the mineral over time, assume a stable demand curve.
(a) How would the competitive allocation of an increasing marginal-cost depletable resource be affected by the imposition of a per-unit tax (e.g., $4 per ton) if there exists a constant-marginal-cost substitute?
(b) Comparing the allocation without a tax to one with a tax, in general terms, what are the differences in cumulative amounts extracted and the price paths?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.