Question
Please help me with this. Suppose that the long-run price elasticity of demand for gasoline is 0.55. Assume that the price of gasoline is currently
Please help me with this.
Suppose that the long-run price elasticity of demand for gasoline is 0.55. Assume that the price of gasoline is currently $1.15 per litre, the quantity of gasoline is 140 billion litres per year, and the federal government decides to increase the excise tax on gasoline by $0.30 per litre. Suppose that in the long run the price of gasoline increases by $0.25 per litre after the $0.30 excise tax is imposed.
What is the new quantity of gasoline demanded after the tax is imposed? How effective would a gas tax be in reducing consumption of gasoline in the long run?
How much does the federal government receive from the tax?
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