A government decides to reduce air pollution by reducing the use of petrol and imposes a specific tax of £0.50 on energy companies for each litre of petrol sold. Use a supply and demand diagram and show the effect of the tax on consumer and producer surplus and comment on the incidence of the tax on consumers of energy and producers of energy.

Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
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A government decides to reduce air pollution by reducing the use of petrol and imposes a specific tax of £0.50 on energy companies for each litre of petrol sold.

Use a supply and demand diagram and show the effect of the tax on consumer and producer surplus and comment on the incidence of the tax on consumers of energy and producers of energy.

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