Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold.
Answer the following questions:
a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.
b. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.
c. Are consumers of gasoline helped or hurt by this tax? Why?
d. Are workers in the oil industry helped or hurt by this tax Why?
