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 on each gallon of gasoline sold. a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram. b. 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. c. Are consumers of gasoline helped or hurt by this tax? Why? d Are workers in the oil industry helped or hurt by this tax Why?

BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
BuyFind

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
Chapter 6, Problem 7PA
Textbook Problem

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 on each gallon of gasoline sold.

a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.

b. 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.

c. Are consumers of gasoline helped or hurt by this tax? Why?

d Are workers in the oil industry helped or hurt by this tax Why?

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