Gasoline and ethanol are substitute fuels.If the government increases taxes on gasoline,this will cause a(n)________ in deadweight loss in the market for gasoline and a(n)________.

Question

Quizplus · Accepted Answer

If the government increases taxes on gasoline, the demand for gasoline will decrease as it becomes more expensive. This will cause a decrease in deadweight loss in the market for gasoline. However, as gasoline and ethanol are substitute fuels, an increase in the price of gasoline will lead to an increase in demand for ethanol, causing an increase in the price of ethanol. Therefore, the correct answer is C, an increase in deadweight loss in the market for gasoline and an increase in the price of ethanol.

Gasoline and Ethanol Are Substitute Fuels