Figure 4-25

Figure 4-25 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 4-25.The gasoline tax raises the price paid by consumers by ________ per gallon.

Question

Figure 4-25
  
Figure 4-25 illustrates the market for gasoline before and after the government imposes a tax to bring about the efficient level of gasoline production.
-Refer to Figure 4-25.The gasoline tax raises the price paid by consumers by ________ per gallon.

Quizplus · Accepted Answer

Before the tax, the equilibrium price is $2.00 per gallon and the equilibrium quantity is 60 million gallons. The efficient quantity is 50 million gallons, which corresponds to the intersection of the demand curve with the marginal social cost curve. After the tax is imposed, the supply curve shifts upward by the amount of the tax ($0.50 per gallon) to reflect the additional cost to producers. The equilibrium price increases to $3.25 per gallon ($2.00 + $1.25) and the equilibrium quantity decreases to 50 million gallons. Therefore, the tax raises the price paid by consumers by $1.25 per gallon.

Figure 4-25 Figure 4-25 Illustrates the Market for Gasoline Before and After