Suppose a public referendum is being held on whether or not to levy a tax on gasoline. Currently, the supply of gasolin

[answerhappygod]

Suppose a public referendum is being held on whether or not to
levy a tax on gasoline. Currently, the supply of gasoline is
given by Qs = -200 + 120P. You estimate the demand for
gasoline to be Qd = 340 - 60P.

You are asked to evaluate the likely effects of a tax on gasoline
equal to $3 per gallon of gasoline. Specifically, you are to
file a report which predicts by how much this will reduce the
amount of gasoline sold. You are also asked to estimate the
proportion of the tax that will be paid by the suppliers of
gasoline, and the proportion of the tax that will be paid by the
consumers of gasoline.

To do this, you will first need to calculate the current price and
quantity of gasoline sold.

a) What is the equilibrium price and quantity of gasoline?

Next you know from your economics class that you will need to know
the price elasticity of demand and the price elasticity of supply
of gasoline.

b) What is the price elasticity of demand for gasoline at the
equilibrium price?

c) What is the price elasticity of supply of gasoline at the
equilibrium price?

Using your answers to b) and c), you are now able to determine what
proportion of the tax will be paid by buyers, and what proportion
of the tax will be paid by sellers.

d) What proportion of the tax will be paid by sellers?

e) What price will buyers pay after the tax is imposed?

f) How many gallons of gasoline will be sold after the
tax?

Finally, a new proposal suggests that the tax should be levied on
the gasoline companies instead of the buyers.

g) From what you have learned in this class, how should you respond
to this proposal?