--%>

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 : Setting tone for subsequent generations

    Who was responsible for setting the tone for following generations of economists?

  • Q : Problem related to direct foreign

    China is a huge manufacturer of technology of telephone devices. It has lately become a member of W.T.O. that means it can sell its products in other member countries such as India. Assume that it does export a big number of telephone instruments to India:

  • Q : Who won the Nobel Prize for Economics

    Who won the Nobel Prize for Economics in 1997?

  • Q : Gain from specialization and exchange

    If a Hawaiian can produce 50 bushels of either potatoes or pineapples per acre, whereas an Idahoan manages just 3 bushels of pineapples or 30 bushels of potatoes per acre, then: (1) Idaho’s absolute drawbacks prevent gains from specialization and exchange. (2) T

  • Q : Circular flow model In simple circular

    In simple circular flow model, the only entities which finally consume goods, own resources, pay taxes or bear the loads of inflation, experience joy, or suffer pain, are as: (i) corporations. (ii) Households. (iii) Government agencies. (iv) Business

  • 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 : Inflow of foreign currency Determine

    Determine the factors accountable for inflow of foreign currency? Answer: a) Foreigners buying home country services and goods via exports. b) Foreigners investment in home country via joint ventures and via

  • Q : International portfolio investments 5.

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

  • Q : Must home production be defended to

    Examining US–Canadian imports-exports and analyzing a call to protect the US lumber business.

  • Q : Autonomous or accommodating carry

    Which transactions- autonomous or accommodating carry balance in BOP? Answer: Accommodating transactions carry balance in the BOP or balance of payment.