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Suppose that the market demand-and-supply curves for the gasoline market are given below. In each case, quantity refers to millions of liters of gasoline/month: Qd is the quantity demanded; Qs is the quantity supplied; p is the price per liter (in cents).

p = 350 - 24Qd

p = 140 + 6Qs

1. What is the market equilibrium quantity and price?

2. Now suppose the government collects a sales tax of 46 cents/liter on gasoline suppliers. What is the new equilibrium quantity and price? What is the price that consumers pay now? What is the price that suppliers receive now? (Hint: derive the new supply curve first)

3. How many million dollars of tax revenue are collected by the government? (You should use the information provided in Part (b) only; tax revenue = tax/liter* liters sold) What percentage share of this tax revenue is paid by suppliers? What percentage share of this tax revenue is pass-through to consumers?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91229807

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