For the purposes of this problem assume that the elasticity of demand for gasoline is around

-0.25; this estimate is supported by many studies of gasoline demand.For this problem, assume that the elasticity of supply is 1.

Currently, gasoline costs about $2 per gallon and we use around 135 billion gallons of gas per year.

a)Find the new price that consumers will pay for gas.

b)How much will producers receive after the tax?

c)How much of the $1 per gallon tax are consumers paying?

d)How much does the price received by producers fall?

e)What would happen to our gasoline use?Use either the graph or (for full credit) the elasticity of demand to estimate the new quantity.How much tax revenue is this tax likely to generate?Show tax revenue on your graph for full credit.