Question

7. problems and applications q7 congress and the president decide that the united states should reduce air pollution by reducing its use of gasoline. they impose a $0.50 tax on each gallon of gasoline sold. suppose they decided to impose the tax on producers. in the following graph, shows the effect of a $0.50 tax on each gallon of gasoline sold imposed on producers by shifting the demand or supply curve. demand supply 0 1 2 3 4 5 6 3.0 2.5 2.0 1.5 1.0 0.5 0 price of gasoline (dollars per gallon) quantity of gasoline (thousands of gallons) demand supply true or false: the price producers receive will be higher if the tax were imposed on consumers. true false this tax would be less effective in reducing the quantity of gasoline consumed if the demand for gasoline were elastic. true or false: consumers of gasoline are helped by this tax. true false workers in the oil industry are by this tax.

Answer 1

A $0.50 tax on gasoline, whether imposed on producers or consumers, will not result in a higher price received by producers and may be less effective if the demand is elastic. The workers in the oil industry are likely to be adversely affected by this tax since it could lead to reduced production.

Step-by-step explanation:

When discussing the effects of a tax on gasoline, it is important to understand how it affects the market for gasoline. A $0.50 tax on each gallon of gasoline sold, if imposed on producers, would shift the supply curve upward by the amount of the tax. This means producers would receive a lower price for their gasoline, since they have to pay the tax out of their sales revenue. Whether the tax is imposed on consumers or producers, the end result in terms of price paid by consumers and received by producers is the same due to the tax incidence, which depends on the relative elasticity of supply and demand. In the provided scenario, imposing the tax on producers would not result in a higher price received by them.

Furthermore, if the demand for gasoline is elastic, consumers will reduce their gasoline consumption significantly in response to the higher prices resulting from the tax. The tax will lead to a larger decrease in the quantity demanded, making it more effective in reducing pollution levels. Conversely, inelastic demand would mean that the quantity consumed does not decrease as much, making the tax less effective.

Regarding the workers in the oil industry, this tax is likely to hurt them because it decreases the incentive for producers to supply gasoline, potentially leading to reduced production and possibly affecting their employment or wages.