--%>

Gasoline market-Demand and supply problem

Let us suppose that US gasoline market has the demand and supply curves
Qd = 10 – 0.5Pd
Qs = -2 + Ps when Ps ≥ 2 and Qs = 0 if Ps < 2,

Here quantities stand for millions of gallons per year and prices refer to the amount of $ per gallon

(i) With no tax, determine the equilibrium price and quantity?

(ii) Assume that the government imposes an excise tax of $3 per gallon. Then what will the new equilibrium quantity? Determine the price which buyers pay? And what price will sellers receive?

(iii) Determine the impact of this tax on the consumer excess and the producer excess. In addition, compute the tax collection from government and the welfare deadweight loss.

E

Expert

Verified

With a $3 tax, setting Qd = Q implies

10 - 0.5 (Ps + 3) = -2 + P

After replacing into the equation for Pd implies Pd = 10.  Replacing this price into the equation for quantity demanded entails  million.  At such prices and quantities, consumer excess is $25 million, producer excess is $12.5 million, and government tax receipts are $15 million. The deadweight loss is $1.5 million. The deadweight loss evaluates the difference among potential net benefits ($54 million) and the total benefits which are really attained ($25 + $12.5 + $15 = $52.5 million).

   Related Questions in International Economics

  • Q : Why Supply of foreign exchange is made

    Supply of foreign exchange: (A) By exports of services and goods(B) Direct foreign investment in residence country(C) For approximate purchases by non-residents in the home country(D) Remittances

  • Q : Economics Hi Can you give estimate for

    Hi Can you give estimate for this assignment please look at attachment page no for questions, book for case studies as in pdf. Assignment2: Page no 52 Assignment3:Case Analysis 74 Assignment4:Case analysis-98 Mini-99 Assignment5: Case analysis-122 Assignment6:Paper-126-127 Most the infor

  • Q : International portfolio investments 5.

    5. What are the factors responsible for the recent surge in international portfolio investment?

  • Q : Define flexible exchange rate Flexible

    Flexible exchange rate: The rate of exchange in terms of other currencies is determined by market forces of demand-supply.

  • Q : Macroeconomic adjustment and EMU The

    The practice considers the Treasury’s elucidation of the consequence on macroeconomic adjustment of joining the euro.

  • Q : International portfolio investments 5.

    5. What are the factors responsible for the recent surge in international portfolio investment?

  • Q : Influence of demand in exchange rate If

    If exchange rate of foreign currency downs or falls, its demand rises. Describe how? Answer: If exchange rate falls, an import become cheaper, demand for imports in

  • Q : Scarcities in International markets

    Assume that many people are willing and capable to pay greater than production costs for certain goods however pervasive shortages exist. International agreements or domestic laws and policy are most likely key factors if we consider sustained scarcities in ma

  • Q : Define balance of payment or BOP

    Balance of payment: It is a systematic record of each and every economic transaction of a country with the rest of world in an accounting year.

  • Q : Current account of Indias Balance of

    State the items that are not involved in the current account of India’s Balance of payment. Answer: The capital transactions is in the form of direct and portf