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Because of the reduced use of the highway, demand in the secondary market for gasoline falls - indeed, by 30,000 gallons per year. As we realize, there is a stiff tax on gasoline, one that existed prior to the new toll. Assuming that the marginal cost of producing gasoline is $1 per gallon, that these marginal costs are constant (i.e., the supply schedule is horizontal), that no externalities result from the consumption of gasoline, and that the gasoline tax adds 30 percent to the supply price, are there any additional costs or benefits due to this shift? If so, how large are they?

Microeconomics, Economics

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