1. A carbon pricing scheme (CPS), commonly termed as a 'carbon tax' was introduced by the Gillard
Government in 2011 and came into effect on 1 July 2012. Under the legislation, the biggest carbon-emitting companies in Australia would pay a price for each tonne of carbon. Then Opposition Leader Tony Abbott termed the intended tax as a "toxic tax from a government with the Midas touch in reverse". Gillard's CPS was in operation until it was replaced on the 17 July 2014 by the Abbott government.
a) Using appropriate diagram/s, discuss whether the carbon pricing scheme has been an adequate measure to correct the market failure and reduce CO2 emission. Also illustrate the socially optimal level of output and price of carbon content of fuels in the diagram. (3 marks)
b) Prime Minister Gillard also proposed that Australian households would be handed more than $15 billion in compensation to help offset the impact of carbon tax. Explain how this compensation would stimulate the output, employment and price level. (2 marks)