Assume an increasing marginal-extraction-cost model of the allocation of a depletable resource with a renewable substitute (refer to text and/or notes for graph). Showing diagrammatically, what happens if:
a. A per-unit tax if imposed by the government on each unit of the depletable resource used. Be sure to show the new effect on (i) marginal extraction cost and marginal user cost; (ii) quantity extracted; and (iii) switching point.
b. Now on a new graph, show diagrammatically what happens to the (i) quantity extracted; and (ii) switching point if technological development in resource extraction reduces the extraction cost for each unit by an amount equal to the per-unit tax.
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