Question
Suppose that, in order to incentivize drivers to switch to electric vehicles, a government imposes a tax to be added to the purchase price
Suppose that, in order to incentivize drivers to switch to electric vehicles, a government imposes a tax to be added to the purchase price of gasoline cars and a subsidy (discount voucher) on the purchase of electric cars. You can assume whatever you think is reasonable about the demand and supply elasticities to prices. Illustrate the likely effects of those policies using graphs. Discuss: what happens to the quantity of gasoline and electric cars in equilibrium? Who bears the burden of the tax and who enjoys the subsidy in your model (between producers and consumers)? As a policymaker, do you want demand and supply curves to be more or less price elastic for the policy to work?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started