The government decides to reduce air pollution by reducing the consumption of vehicle fuel. It imposes 0.50

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The government decides to reduce air pollution by reducing the consumption of vehicle fuel. It imposes €0.50 tax for each litre of fuel sold.

a. Should it impose this tax on fuel companies or motorists? Explain carefully, using a supply and demand diagram.

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

c. Are consumers of fuel 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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Economics

ISBN: 9781473768543

5th Edition

Authors: Gregory Mankiw, Mark P. Taylor

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