Question
Suppose that in November 2021 consumers in the U.S. purchase 10 billion gallons of gasoline paying $3.2 per gallon. It turns out that $3.2, the
Suppose that in November 2021 consumers in the U.S. purchase 10 billion gallons of gasoline paying $3.2 per gallon. It turns out that $3.2, the price paid by consumers, includes the effects of a 20 cent per gallon of gasoline excise tax. Suppose that the U.S. government wants to reduce the price paid by consumers by cutting the gasoline tax to 10 cents per gallon. Assuming that the laws of demand and supply both hold, will the cut in gasoline tax cause the price to consumers to fall by more than 10 cents, less than 10 cents, or by exactly 10 cents? Explain.
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