7 The federal government decides that Australia should reduce air pollution by reducing its use of petrol. The government imposes a $0.50 tax for each litre of petrol sold.

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

b If the demand for petrol were more elastic, would this tax be more effective or less effective in reducing the quantity of petrol consumed? Explain using both words and a diagram.

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

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