A gallon of gasoline emits about 19lbs of CO2 when burned. A $40/ton tax on CO2...
A gallon of gasoline emits about 19lbs of CO2 when burned. A $40/ton tax on CO2 emissions would add about $0.38 to the price of a gallon of gasoline, about a 15% increase in current gasoline prices. In the near term, what would be the percent decrease in quantity demanded for gasoline given the short run elasticity of demand for gasoline is -0.33.
-3.3%
-5%
-15%
-45%
No change in the quantity of gasoline demanded. Gasoline is a perfectly inelastic good.
Homework Answers
Elasticity = percentage change in demand/percentage change in price
percentage change in price = 15%
Elasticity = -0.33
so, -0.33 = Percentage change in demand/15
Percentage change in demand = 15*-0.33 = -4.95 or -5%
so, the percentage decrease in quantity = 5%
option(B)
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