question archive You are an economic advisor to the Secretary of the Treasury of the United States
You are an economic advisor to the Secretary of the Treasury of the United States
Subject:EconomicsPrice: Bought3
You are an economic advisor to the Secretary of the Treasury of the United States. Congress is considering increasing the sales tax on gasoline by $.10 per gallon. Last year motorists purchased 10 million gallons of gas per month. The demand curve is such that every $.01 increase in price decreases sales by 100,000 gallons per month. You also know that for every $.01 increase in price, producers are willing to provide 50,000 more gallons of gasoline to the market.
a. The legislature has stated that the $.10 tax will increase government revenues by $1,000,000 per month and raise the price of gasoline by $.10 per gallon. Is this correct? Evaluate the impact of the tax on government revenue and the price of gasoline. Include at least one supply and demand analysis in your response. You must clearly state in your response whether you agree or disagree with the estimate of the increase in government revenue and the price of gasoline.
