1.Texas drivers are concerned that
the state government has considered a $0.50 tax on each gallon of gas purchased
at gas stations. Use supply and demand graphs
to show how much of the tax will actually be passed on to consumers. EXPLAIN.
The $0.50 tax causes and leftward shift of the Supply curve by a vertical distance of $.50. Note the increase in equilibrium price and decrease in equilibrium quantity. The entire rectangle shaded is the total tax revenue collected by the government. Exactly how it is shared between consumers and producers depends on the elasticity of the demand curve. The general case is sketched in the graph below. Also note the deadweight loss triangle. Let me know if you have any follow-up questions :)
Feb 25th, 2015
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