Use the figure below to answer the following question(s).
Figure 4-9

-Refer to Figure 4-9.The market for gasoline was initially in equilibrium at poit b.If a $.40 excise tax was imposed,
A)the supply of gasoline would shift to S₂.
B)the price of gasoline to consumers would increase from $1.20 per gallon to $1.40 per gallon.
C)the net price received by producers of gasoline would decline from $1.20 per gallon to $1.00 per gallon.
D)all of the above would occur.

Question

Use the figure below to answer the following question(s).
Figure 4-9
 
-Refer to Figure 4-9.The market for gasoline was initially in equilibrium at poit b.If a $.40 excise tax was imposed,
A)the supply of gasoline would shift to S₂. 
B)the price of gasoline to consumers would increase from $1.20 per gallon to $1.40 per gallon. 
C)the net price received by producers of gasoline would decline from $1.20 per gallon to $1.00 per gallon. 
D)all of the above would occur.

Quizplus · Accepted Answer

A $.40 excise tax on gasoline would increase the cost of production for suppliers, causing the supply curve to shift to the left from S₁ to S₂. As a result, the equilibrium price for gasoline would increase from $1.20 per gallon to $1.40 per gallon, and the quantity demanded would decrease. However, the incidence of the tax would be split between producers and consumers, resulting in a decrease in the net price received by producers from $1.20 per gallon to $1.00 per gallon. Therefore, all of the above would occur.

Use the Figure Below to Answer the Following Question(s)