Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $ 0.50 tax for each gallon of gasoline sold.Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.Are consumers of gasoline helped or hurt by this tax? Why?Are workers in the oil industry helped or hurt by this tax ? Why ?

Tax:Tax is a compulsory payment which is imposed by the government. It is the main source of revenue…

Answered: Congress and the president decide that…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section6.2: Taxes

Problem 2QQ

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Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $ 0.50 tax for each gallon of gasoline sold.

Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.
If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.
Are consumers of gasoline helped or hurt by this tax? Why?
Are workers in the oil industry helped or hurt by this tax ? Why ?

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