Question

Given: Suppose that the 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 for each

gallon of gasoline sold.

Solve: If the demand for gasoline were more elastic, would this tax be more or less effective

in reducing the quantity of gasoline consumed? Explain with both words and a diagram.

Answer 1

Elasticity of demand is the responsiveness of buyers to the demand of a product. The more elastic is the demand, the more responsive will be the buyers. So, when we have demand for gasoline more responsive that means even a slight change in its price will reduce the demand for the gasoline drastically.

Now, the aim of the imposition of the tax by the government on gasoline is to reduce pollution by reducing the consumption of it.

If the demand is more elastic, it will be very much effective as far as consumption of gasoline is concerned, the consumption will fall drastically and consequently there would be fall in the air pollution.

Price price of t Pa .. --- gasoline aften ( quantity of gasoline).