The general equilibrium effects of an excise tax on gasoline which would then be used to purchase military equipment would tend to:
A)raise the price of energy and the price of military equipment, but not have an effect of the quantity of labor employed.
B)raise the price of energy and the price of military equipment, but lower the price of labor.
C)lower the price of energy and the price of military equipment, but not have an effect of the quantity of labor employed.
D)raise the price of energy and the price of military equipment, and increase the quantity of labor employed.

Question

Quizplus · Accepted Answer

An excise tax on gasoline will increase the cost of producing gasoline, leading to a higher price for consumers. This increase in gas prices will also increase the cost of transporting military equipment. As a result, the price of both energy and military equipment will increase. However, the tax is not likely to have a direct impact on the quantity of labor employed, as that is determined by the overall health of the economy and the demand for labor.

The General Equilibrium Effects of an Excise Tax on Gasoline