Question

I am writing a discussion post that must consist of 500 words. i posted what I have so far as well as the discussion question. The parenthesis are for citation. I am looking for tips on how to expand on what i am trying to say and to see if what I already have makes sense as a response. Any pointers or tips would be appreciated. This is Macreconomics.

7:28 <Back M2D: Open Discussion M2D: Open Discussion 100 pts Discussion Please use this discussion forum to connect with your classmates about this module's material. In your initial post, please respond to the following prompt: Suppose that Congress and the President decide that the U.S. should reduce air pollution by reducing its use of gasoline. They impose an additional $0.75 tax for each gallon of gasoline sold. Should the government impose this tax on consumers or producers of gasoline? (Support your argument with the theory of a supply and demand.) Are consumers of gasoline helped or hurt by this tax? Why? Are workers in the oil industry helped or hurt by this tax? Why? See grading rubric for detailed instructions. Reply Donline son vible to the who hunterloset Previous Next Dashboard Calendar To Do Notifications

Answer 1

Answer

The congress and the president decide to reduce air pollution due to gasoline use by imposing an additional tax of $0.75 for each unit of gasoline sold. If the purpose of the tax is to reduce the use of gasoline then it doesn't matter whether the tax is being imposed on consumers or producers of gasoline because depending of elasticity of demand and supply consumers and producers will share the tax burden. If taxes are being imposed on consumers then depending upon the elasticity of demand consumers will reduce their demand, demand curve will shift downward which will create a diverge between supply and demand because at given prices consumers are demanding less now and producers are supplying what they were supplying earlier that is more than current demand. Due to excess supply of gasoline, prices received by producers will go down, which will shift supply curve leftward. However, consumers will still pay more than what they used to pay before the imposition of tax. Therefore, depending on the elasticity of demand consumers and producers will share tax burden. If elasticity of demand is high then fall in demand would be high and producers will have to bear most of tax burden and if demand is inelastic then demand will not fall much then consumers will have to bear most of tax burden. Similarly if taxes are being imposed on producers then actual prices received by them will go down and they will reduce the supply of gasoline, supply curve will shift leftward. So, at given prices consumers are demanding more while producers are supplying less, therefore due to excess demand of gasoline in the market price of gasoline would go up and demand curve will also shift leftward. Therefore, depending on the elasticity of supply consumers and producers will share tax burden. If elasticity of supply is high then fall in supply would be high and consumers will have to bear most of tax burden and if supply is inelastic then supply will not fall much then producers will have to bear most of the tax burden.

It is hard to say whether the consumer will be benefited or hurt by the tax. It depends upon the utility they receive from clean environment or consumption of gasoline. So, if they get higher utility from gasoline consumption then they will get hurt by the imposition of taxes as their gasoline consumption goes down while if they get higher utility from clean environment in comparison to utility received from gasoline consumption then they would get benefit from the imposition of tax as reduction in gasoline consumption helps in reducing air pollution thus, provides the residents/gasoline consumers with cleaner environment.

However, workers in the oil industry will get hurt because no matter whether the tax is being imposed on consumers or producers tax burden will be shared by them as we discussed earlier and final equilibrium quantity of gasoline will fall (due to decreased demand and supply), due to which demand for gasoline workers will go down, hence wages received by them will also go down as supply remains unchanged. Therefore, due to increase tax on gasoline will worse off the gasoline workers.