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Assume that the gasoline industry is perfectly competitive, is a constant cost industry, and is currently in long-run equilibrium, Graphically describe the short-run and long-run effects on this market when a tax of $t per unit is imposed. Assume that the demanders are responsible for paying the tax. In your analysis, indicate the changes in the buyer's price, seller's price, profits, number of firms, industry output and firm's output going from the initial before-tax equilibrium to the short-run equilibrium to the final long-run equilibrium. Show clearly on your graph the long-run supply curve for the industry. How does the economic incidence of the tax change from the short-run to the long-run?

Microeconomics, Economics

  • Category:- Microeconomics
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