Suppose a $ 50 per unit tax on gasoline is place on the seller and assume that the demand curve for gasoline is perfectly inelastic
and the supply curve is elastic. Assume that the equilibrium price
on gasoline is $100 and the equilibrium quantity of oil before the
I
tax is implemented is 150,000 units. Please answer the following
questions using a supply and demand graph and words.
a. As a result of the $50 per unit tax on gasoline being placed on
the sellers, did the supply curve shift to the left or to the right?
What happened to the equilibrium price and equilibrium
quantity of oil after the $50 per unit tax was implemented? Who
pays most or all of the burden of the $50 tax, the buyer or the
seller, and WHY?
b. Please calculate the tax revenue collected by the government.
Please show your work and calculation.
c. Did the government make the right decision in implementing
the $50 per unit tax on the sellers? Why or why not? Explain.