Effect of a decrease in taxes on gasoline.

Question

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Answer 1

Question

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

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Answer 2

Question

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

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Answer 3

Question

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

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Answer 4

Question

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

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Answer 5

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

Answer 6

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.

Answer 7

Chapter 6, Problem 1MC

To determine

Effect of a decrease in taxes on gasoline.

Answer 8

Expert Solution & Answer

Explanation of Solution

Option (d)

As per the law of demand, a decrease in the price of a product will increase its demand. In the given situations, a decrease in taxes on gasoline would increase the disposable income of the taxpayers, which should increase the demand for gasoline. While, due to a less elastic demand for gasoline (-0.7) in the short run, there will not be many changes in the consumption of gasoline in relation to a decrease in taxes. Therefore, a decrease in taxes on gasoline would lower tax revenue in the short run. On the other hand, the long-run elasticity of demand for gasoline is -1.8, which is more elastic. This would increase the demand for gasoline when the taxes on gasoline decreases. Therefore, a decrease in tax would increase the tax revenue in the long run. Thus, option (d) is correct.