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 point b . If a $.40 excise tax was imposed, A) the supply of gasoline would shift to S ₂. 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

Quizplus · Accepted Answer

When an excise tax is imposed, the supply curve shifts upward to the left by the amount of the tax (in this case, $.40), resulting in a new equilibrium at point a. This means both A and B are correct. However, the price received by producers is determined by the intersection of the supply and demand curves, so the price they receive will decrease from $1.20 to $1.00 per gallon, as shown by the distance between points b and c. Therefore, C is also correct. All of the above would occur.

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