Affect the supply and demand curves for gasoline

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Reference no: EM131244725

For the sake of simplicity, suppose 89 octane is the only grade of gasoline and it currently sells for $2.89/gallon. Suppose the federal government imposes an excise tax on gasoline of $10/gallon. This tax will take effect one year from today. Based on this information alone, answer the following questions (ceteris paribus): (20)

A. How should this affect the supply and demand curves for gasoline?

B. How should this affect the supply and demand curves in the market for electric cars?

C. Who do you expect to pay the majority of the tax, the sellers or the buyers? Briefly explain your rationale.

D. Suppose the federal government offset this tax increase with a dollar-for-dollar tax decrease in the income tax. Would the economy be better off, worse off, or experience no change? Briefly explain (this is challenging so I recommend saving it till the end).

Reference no: EM131244725

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