Question 3 options:

Suppose the government increases the excise tax on gasoline by $0.2, which is imposed on the seller (the seller has to pay the tax to the government).. The equilibrium price was $1.00 and the equilibrium quantity sold was 5 mio. gallons before the taxes were increased. The new equilibrium price is $1.1 and the new equilibrium quantity is 4 mio. gallons.

The figure below illustrates the changes from an excise tax.

P S1 SO ........ Ps=1.1 Ps=1 Ps=0.9 D 4 5