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microbook_3e-page56 - a. The price of gasoline paid by...

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14. Suppose that the government imposes an excise tax of $1 for every gallon of gas sold. Before the tax, the price of a gallon of gas is $2. Consider the following four after-tax scenarios. In each case: (i) use an elasticity concept to explain what must be true for this scenario to arise (ii) determine who bears relatively more of the burden of the tax, producers or consumers and (iii) illustrate your answer with a diagram.
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Unformatted text preview: a. The price of gasoline paid by consumers rises to $3 per gallon. Assume that the demand curve is downward sloping. b. The price paid by consumers remains at $2 per gallon. Assume that the supply curve is upward sloping. c. The price of gasoline paid by consumers rises to $2 . 75 per gallon. d. The price of gasoline paid by consumers rises to $2 . 25 per gallon. Page 56...
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This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

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