Question

Congress and the president decide that the united states should reduce air pollution by reducing its use of gasoline. they impose a $0.50 tax on each gallon of gasoline sold. who should they impose this tax on?

Answer 1

Consumers if the goal is to reduce consumption. If you tax producers, it can have the effect of driving out smaller operators with lower margins and reduce the effectiveness of the tax by allowing larger producers to offset some of the tax due to less competition. By taxing consumers you can reduce the incentives to cut costs and consolidate at the producer level