There’s a gas shortage in Gasland. You’re presented with two proposals that will achieve the same level of reduction in the use of gas. Proposal A would force everybody to reduce their gas consumption by 5 percent. Proposal B would impose a 50-cent tax on the consumption of a gallon of gas, which would also achieve a 5 percent reduction.

Consumers of gas can be divided into two groups—one group whose demand is elastic and another group whose demand is inelastic.

a. How will the proposals affect each group?

b. Which group would support a regulatory policy?

c. Which would support a tax policy?