Question

Assume that the government increases the unit excise tax on gasoline suppliers and also that people commute longer distances to work as more houses are built in city suburbs. As a result the equilibrium price and quantity of gasoline will most likely change in which of the following ways? Price .... .... Quantitya. Increase .... .... Increaseb. Decrease .... .... Indeterminatec. Indeterminate .... .... Increased. Increase .... .... Indeterminatee. Indeterminate .... .... Decrease

Answer 1

Answer:

Increase , indeterminate ( D )

Explanation:

If the government increases the unit excise tax on gasoline suppliers the supplier will most definitely increase the price of he gasoline in the open market . according to the law of economics the increase in price of commodities leads to a significant decrease in demand for the commodity.

but with a inelastic/essential commodity an increase in the price of the commodity the change in demand is not significant hence it is indeterminate.  The gasoline is an essential commodity in this question because the people need it to commute longer distances to work regardless of the price changes . the change in the quantity is indeterminate because the people might continue buying the same quantity, reduce slightly the quantity been purchased or increase the quantity. on the other hand the supplier might decide to either maintain the same supply, or reduce the amount of supply or even increase the supply .

Answer 2

Answer:

Option D)

• Price ⇒ increase
• Quantity ⇒ indeterminate

Explanation:

Since the government increases the excise tax on gasoline, the price of gasoline should increase. Taxes always do that, they increase the price of everything. This increase in price should result in a lower quantity demanded.

If consumers start to drive longer distances because they decided to live in the suburbs, this will increase the quantity demanded for gas, and that increase int eh quantity demanded should also increase the equilibrium price.  

If we combine both situations, only one definite outcome will result: the equilibrium price of gasoline will increase. But regarding the quantity demanded, that is a little more complicated because the increase in price should lower the quantity demanded, not by a lot because gas is generally very price inelastic. On the other hand, longer rides should increase the quantity demanded, but we do not know by how much. So the change in quantity is indeterminate.