.

The supply of gasoline to the small state of Jefferson is perfectly elastic.

Without a tax on gasoline,

the supply curve is horizontal at a price of $2 per gallon.

The demand for gasoline in Jefferson is

given by the equation Q = 130

-

10P, where Q is gallons demanded in Jefferson and P is the price of a

gallon of gasoline.

Suppose Jefferson imposes a tax of $1 per gallon on sellers of gasoline.

What is

the excess burden of this tax?

a.

zero

b.

$5

c.

$10

d.

$15

e.

$20