Suppose that a government wants to reduce its economy\'s dependence on coal and

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Suppose that a government wants to reduce its economy's dependence on coal and decides as a result to tax coal mining companies $1 per ton for every ton of coal that they mine. Consider the figure above. Assuming that coal mining companies treat this tax as an increase in extraction costs this year, the tax will Suppose that the tax will be in place forever, so that it will also affect extraction costs in the future. In this case, the tax will decrease future extraction costs, lower future profits, and reduce the user cost. increase future extraction costs, increase future profits, and reduce the user cost. increase future extraction costs, lower future profits, and reduce the user cost. increase future extraction costs, lower future profits, and increase the user cost. A permanent tax will shift the EC curve and the TC curve down by the amount of the tax, but the decrease in user cost (UC) will shift it back up by more than the tax. shift the EC curve and the TC curve up by the amount of the tax, but the decrease in user cost (UC) will shift it back down by less than the tax. shift the EC curve and the TC curve down by the amount of the tax, but the increase in user cost (UC) will shift it back up by more than the tax. shift the EC curve and the TC curve up by the amount of the tax, but the increase in user cost (UC) will shift it up by less than the tax. A temporary environmental tax will result in the same level of current extraction as no tax. the same level of current extraction as a permanent environmental tax. more current extraction than a permanent environmental tax. less current extraction than a permanent environmental tax.

Explanation / Answer

Suppose that the tax will be in place forever, so that iit will also affect extraction cost in the future. In this case, the tax will increase future extraction costs, lower future profits and increase the user cost

A permanent tax will shift the EC curve and the TC curve up by the amount of the tax, but the increase in user cost (UC) will shift it up by less than the tax

A temporary environmental tax will result in less current extraction than a permanent environmental tax

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Suppose that a government wants to reduce its economy\'s dependence on coal and

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