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On March 11, 2022, the national average gasoline price was $4.33, the highest on record. To alleviate the impact on drivers, some have proposed eliminating
On March 11, 2022, the national average gasoline price was $4.33, the highest on record. To alleviate the impact on drivers, some have proposed eliminating the federal and state taxes on gasoline for some time. Suppose demand and supply for oil are given by: D:Q=3o6pD s:Q=5+2p5 where p\" represents the price (in $ per gallon) paid by drivers, p5 is the price for suppliers, and Q is million gallons of gasoline. on. What is the market price (p*) and market quantity (0*)? Assume to start that p\" = s p . b. Solve for the market equilibrium [driver (pp) 8: producer (p5 ) prices, and market quantity (QT)] if gasoline suppliers are given a $1 / gallon subsidy (equivalent to a $1 /gallon tax cut). Show graphically. 72. How much revenue would this cost the government? it. What is the economic incidence of the subsidy? 0. Suppose the government decided instead to help drivers directly by offering them the $1 /ga.llon subsidy. Solve for the incidence. 2'. Would helping drivers directly make a difference? Explain. d. What does your analysis suggest about the gasoline tax cut as a way to help drivers
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