Most studies show that the price elasticity of demand for gasoline is -0.2.If the price elasticity of supply is 2, then a tax on gasoline will:

Question

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A tax on gasoline will shift the supply curve to the left, causing the price paid by buyers to rise and the net price received by sellers to fall. The magnitude of the change in the equilibrium price will depend on the relative elasticities of supply and demand. Since the price elasticity of supply is greater than the absolute value of the price elasticity of demand, the impact on quantity will be greater than the impact on price. As a result, both (b) and (c) are likely to occur.

Most Studies Show That the Price Elasticity of Demand for Gasoline