3 Tax incidence What is the current Fuel Duty for unleaded petrol and diesel per litre (link https:// www.gov.uk/government/publications/rates-and-allowances-excise-duty-hydrocarbon- oils/ excise-duty-hydrocarbon-oils-rates)? What is the current prices of petrol and diesel per litre (link https://www.confused.com/on-the-road/petrol-prices)? What is the quantity of petrol and diesel currently used in the UK (link https:// www.racfoundation.org/data/volume-petrol-diesel-consumed-uk-over-time-by-year)? This paper estimates that the price elasticity of demand is about (-0.6). Assume that the supply is dictated by the world market and it is perfectly elastic (at the world price plus delivery cost). For example, this textbook is available online from our library: Microeconomics by Perloff, Jeffrey M. 3"Explaining the Variation in Elasticity Estimates of Gasoline Demand in the United States: A Meta-Analysis", The Energy Journal, Vol. 17, No. 3 (1996), pp. 49-60, accessible via the University network from https://www.jstor.org/stable/41322693 2 Hint: Read about tax incidence and the role of elasticities. 1. Suppose that a new government abolishes Fuel Duty. How would the market price the quantity change? What if the supply of petrol is not perfectly but very elastic, equal to (+3). 2. Suppose that supply is perfectly elastic, but that the world price of oil/petrol goes up by 10%. If the government continues to charge the Fuel Duty, what happens with the government tax revenues