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25. Suppose that the U.S. government raises the tax on gasoline sellers by $0.30 per gallon. If the market price of gasoline rises by $0.20, we know that: (a) gasoline companies are behaving unlawfully. (b) the demand for gasoline is more inelastic than the supply of gasoline. (c) the supply of gasoline is more inelastic than the demand for gasoline. (d) the demand for gasoline is unit elastic.

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Beverley Smith
Beverley SmithLv2
18 Sep 2018
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Related questions

Please explain/prove your answers. Are the following statements true or false?

A. A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

B. If the government places a $2 tax in the market, the seller bears $2 of the tax burden.

C. Buyers and sellers rarely share the burden of a tax equally.

D. When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00.

E. If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist.

Consider the demand for the gasoline sold by Gas Station G in a large city. The gasoline sold by other stations is an excellent substitute for the gasoline sold by Station G. Because there are many good substitutes for gasoline, its demand is probably elastic.

A. If the price at Gas Station G rises by 10%, by what percentage is its quantity sold likely to change, other things being the same?

B. In this case, what will happen to Station G'S revenues when the price rises?

C. Make a general statement about how revenues will change when the price rises or when it falls if demand is elastic and if it is inelastic.

D. It is often suggested that increasing gasoline taxes will reduce the number of gasoline people will buy and, as a result, reduce air pollution. In the short run would such a policy be effective in reducing air pollution? Would the policy be effective in reducing air pollution in the long run? Why?

34) Suppose the quantity of gasoline demanded decreases from 105,000 litres per week to 95,000 litres per week when the price rises by 5 percent. The price elasticity of demand for gasoline A) is 2.0. B) is 10. C) is inelastic. D) is 0.5. E) cannot be computed unless we know the original price and the new price.

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