Illinois gasoline taxes. Two months ago, on July 1, 2019, the State of Illinois raised gasoline taxes by $.19 (19 cents) per gallon of gas.

A. For this question, please model the short-run impact of this tax on a typical Illinois gas station. The horizontal axis will be qgas (the output of this particular producer) and the vertical axis will measure price in dollars, $. This firm is subject to the same Law of Diminishing Marginal Product we discussed in class. Begin by graphically depicting the "Family of Short Run Cost Curves" (AFC, AVC, ATC, MC) for this producer in late June, prior to the implementation of the new gasoline tax (graph needed).

B. Now, suppose the new tax is imposed on Illinois gasoline stations. Draw a second graph, showing both the set of original curves you showed in Part A as well as the new cost curves reflecting the additional 19 cents per gallon tax in place. Be sure to indicate which curves depict the pre-tax scenario and which depict the post-tax scenario (for example, by drawing them pre-tax and post-tax curves in different color and using clear labels).

(Both a graph and a narrative are needed for this question)

C. Explain why each of the four cost curves was or was not affected by this change, as applicable, between your graphs in Question (3) and Question (4) (pre- and post-tax). Did this tax increase impact fixed costs or variable costs? Explain.

(Only a narrative explanation is needed for this question)

D. Graphically depict the market for Illinois gasoline prior to the July 2019 increase in gasoline tax. Clearly indicate equilibrium Q and P on the graph.

E. Continue the analysis of the Illinois gasoline market. Now it is past July 2019 and the market has changed. The gasoline tax is in place for all Illinois gasoline stations. In addition to the gasoline tax increase, Illinois dealers on average are noticing that many of their customers are going across the border to buy gasoline in Wisconsin, Iowa, Missouri and Indiana. Not all customers can make this work, as they live far from a border. But there is a clear impact on the market for Illinois gasoline producers. Using the graph you constructed for Question (6), build a new graph showing the impact of the Illinois gas tax increase and the shift of some Illinois consumers to border state gas stations, clearly indicating any shifts in the demand and/or supply curves and the resulting equilibrium Price and Quantity. Provide a narrative explaining the shifts.

(Both a graph and a narrative are needed for this question)

F. Continue the analysis of the Illinois gasoline market. Now it is past July 2019 and the market has changed. The gasoline tax is in place for all Illinois gasoline stations. In addition to the gasoline tax increase, Illinois dealers on average are noticing that many of their customers are going across the border to buy gasoline in Wisconsin, Iowa, Missouri and Indiana. Not all customers can make this work, as they live far from a border. But there is a clear impact on the market for Illinois gasoline producers. Using the graph you constructed for Question (6), build a new graph showing the impact of the Illinois gas tax increase and the shift of some Illinois consumers to border state gas stations, clearly indicating any shifts in the demand and/or supply curves and the resulting equilibrium Price and Quantity. Provide a narrative explaining the shifts.

(Both a graph and a narrative are needed for this question)

G. Regarding your analysis of question 7, what can you unambiguously say about the effect of the two events in question 7 (increase in Illinois gas tax and some Illinois customers going out of state) on equilibrium quantity and the equilibrium price of gasoline purchased in Illinois? Explain.

(Only a narrative explanation is needed for this question)