Question

Consider the market for gasoline ilustrated in the figure to the right suppose the market is perfectly competitive Now suppose the government imposes a gasoline tax of $150 to be paid for by producers. The effect of this taxislustrated in the figure to the right Who bear the burden of the tax dolars per gatto Consumers pay of the $1.50 tax (enter a numeric responde using a real number rounded to two decima places) and producers pay of the tax Price of gen

Answer 1

The burden of the taxation may fall both consumers and producers or both, it is depended upon the respective price elasticity of demand and the supply. If the supply is more elastic than the demand , buyers bear most of the tax burden, similarly if the demand is more elastic than the supply the sellers bear most of the tax burden.

S+TAX $1 Burden on consumers Burden on producers

Ans: The consumers pay $ of the tax.

   The producers pay $ of the tax.