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Gas prices fluctuate often and in both directions. Incorporate the supply-and-demand model to demonstrate the elasticity of demand for gas and to show the effects

Gas prices fluctuate often and in both directions. Incorporate the supply-and-demand model to demonstrate the elasticity of demand for gas and to show the effects of tax on the market for gas for the following questions:

  • How responsive do you think consumers will be to the price change when these fluctuations occur due to changes in supply? Why? Use the various determinants of elasticity to explain your answer.
  • How does the price elasticity of demand for gasoline impact the effectiveness of taxes on gasoline aimed at correcting a negative externality?

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