Price Theory Assignment 1 { Consumer Theory Carbon dioxide (CO2) is emitted when drivers use petrol to power their cars. CO2 emis- sions are a negative externality of petrol use, as they contribute to global warming. One way to correct this market failure is to levy a corrective tax (also known as a Pigovian tax) on petrol. Suppose that Sally has an income of $300 per week. Sally's utility is given by the function U(x; y) = pxy, where x is the quantity of petrol (measured in litres), and y is the quantity of the composite good. The marg... More