Explain how does the increase in the after-tax price

Reference no: EM1328904

Tax incidence determination by elasticity

1. What is "tax incidence"? Describe how a $1 per gallon increase in the gas tax will result in an after-tax price increase that is less than $1

2. How does the increase in the after-tax price depend on the price elasticity of demand and the price elasticity of supply?

3. Burning gasoline creates pollution? Is this pollution a negative externality? If so, use social cost and demand to graphically
depict how you could "correct for the negative externality. ( Just show direction - don't need numbers - Just want to understand how this would look on a graph)

Reference no: EM1328904

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