1.7. 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. (LO8-2)

a. How will the proposals affect each group?

b. Which group would support a regulatory policy?

c. Which would support a tax policy?