Question 24 (1 point)After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true? aConsumers bear the entire burden of the tax, since producers can pass the tax along to consumers. bConsumers and producers share the tax burden equally. cConsumers bear most, but not all, of the tax burden. dProducers bear the entire burden of the tax, since the tax was levied on producers, not consumers. eThere is no tax burden, since gasoline is a normal good.
Question
Question 24 (1 point)After the government imposed a 1.00 to $1.15. Which of the following statements is true? aConsumers bear the entire burden of the tax, since producers can pass the tax along to consumers. bConsumers and producers share the tax burden equally. cConsumers bear most, but not all, of the tax burden. dProducers bear the entire burden of the tax, since the tax was levied on producers, not consumers. eThere is no tax burden, since gasoline is a normal good.
Solution
The correct answer is c. Consumers bear most, but not all, of the tax burden. Here's why:
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The government imposed a 0.20 must be paid in taxes.
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After the tax was imposed, the price of a gallon of gasoline increased from 1.15. This is an increase of $0.15.
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The fact that the price increased by 0.20 of the tax, suggests that the producers absorbed some of the tax burden. They did this by not passing the full cost of the tax onto consumers.
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Therefore, while consumers did bear most of the tax burden (as seen by the price increase), they did not bear all of it. Some of it was absorbed by the producers. Hence, option c is the correct answer.
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