Current price of gasoline at the pump

Reference no: EM13693849

Suppose the current price of gasoline at the pump is $3.89 per gallon and that 1 million gallons are sold per month. A politician proposes to add a 10¢ tax to the price of a gallon of gasoline. She says the tax will generate $100,000 tax revenues per month (1 million gallons × $0.10 = $100,000). What assumption is she making in terms of price elasticity of demand? Is she correct in her assumption? Please explain

Reference no: EM13693849

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