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 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

Quizplus · Accepted Answer

Option A: When an excise tax is imposed on gasoline, its supply will shift to the left. The new supply curve will be SS1 and it intersects the original demand curve at U1B1. From here, the new equilibrium price will be at $1.40 per gallon, which shows an increase in price for the consumers. Therefore, option A is correct.

Option B: When an excise tax is imposed, the new equilibrium price will increase to $1.40 per gallon from the initial price of $1.20 per gallon. Therefore, option B is correct.

Option C: Due to the imposition of an excise tax, the net price received by producers of gasoline would decline from $1.20 per gallon to $1.00 per gallon. This is due to the increase in production costs for producers. Therefore, option C is also correct.

Hence, all of the above options would occur if a $.40 excise tax was imposed.

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