Aggregate US demand for carbon emissions (or the marginal benefit of carbon emissions) is approximately: Q = 1,500,000,000 - 500,000P. where Q is measured tons of carbon per year and P is measured in dollars.
1. How many tons of carbon will the US emit if there is no cost to putting carbon in the atmosphere?
2. Suppose the true social cost of a ton of carbon is $200 and that government places a $200 tax on each ton of carbon emissions (which translates into a gasoline tax of about 53 cents per gallon). How much carbon would Americans emit? How much revenue would the tax raise?