The figure above shows the market for gasoline. The government has imposed a tax on gasoline
a) What is the amount of the tax per gallon of gasoline? b) How much of the tax is paid by consumers? How much is paid by producers? Which is more elastic, the supply or demand for gasoline?
a) The tax is $1.50 per gallon, the amount by which the supply curve has been shifted upward.
b) Consumers pay $1 of the tax, as the price they pay rises from $1.50 to $2.50 per gallon. Producers pay $0.50 of the tax, as the price they receive falls from $1.50 to $1.00 per gallon. The supply is more elastic because suppliers pay a smaller fraction of the tax than do buyers.
You might also like to view...
When an economy is above full employment and the government has a budget deficit, that deficit
A) is less than the structural deficit. B) exceeds the structural deficit. C) is equal to the cyclical deficit minus the structural deficit. D) is equal to the cyclical deficit. E) is equal to the structural deficit minus the cyclical deficit.
Systematic efforts to extend vaccination throughout the world have produced a situation today in which the smallpox virus is
A) in short supply (a shortage exists). B) rare. C) scarce. D) all of the above.