Question

A country that imports a substantial amount of gasoline every year imposed a $1.2 per gallon excise tax on gasoline, to be paid by sellers. The equilibrium price of gasoline prior to the tax was $4 per gallon. Gasoline being a necessary good, its demand curve is steep and the consumers had to bear the bulk of the tax burden. The post-tax price of gasoline went up to $5 per gallon, causing the country's media to claim that it was unfair that people should have to pay so high a price for such an important consumption item. They further believed that such a high tax was inefficient and could not be justified. Which of the following inferences can be drawn from this information? A. The deadweight loss of the tax is very high. B. The burden on consumers would reduce if the tax was imposed on them, rather than the sellers. C. The sellers of gasoline now receive 20 cents less than the pre-tax price. D. The sellers bear 1.2 percent of the entire tax burden. E. The consumers are bearing the entire burden of the tax.

          A country that imports a substantial amount of gasoline every year imposed a $1.2 per gallon excise tax on gasoline, to be paid by sellers. The equilibrium price of gasoline prior to the tax was $4 per gallon. Gasoline being a necessary good, its demand curve is steep and the consumers had to bear the bulk of the tax burden. The post-tax price of gasoline went up to $5 per gallon, causing the country's media to claim that it was unfair that people should have to pay so high a price for such an important consumption item. They further believed that such a high tax was inefficient and could not be justified. Which of the following inferences can be drawn from this information?
A. The deadweight loss of the tax is very high.
B. The burden on consumers would reduce if the tax was imposed on them, rather than the sellers.
C. The sellers of gasoline now receive 20 cents less than the pre-tax price.
D. The sellers bear 1.2 percent of the entire tax burden.
E. The consumers are bearing the entire burden of the tax.

Added by Jennifer R.

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