Korea imports crude oil and refines it to gasoline. Suppose all refineries have about the same technology
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Question:
a. Draw the supply curve for Korea's gasoline production and the demand curves for winter and summer.
The Korean government proposes a tax on domestically refined gasoline. The tax the legislators propose is smaller than the delivery cost of importing. The legislators also argue that the tax is on refineries, so consumers won't have to pay it, but some opponents of the tax disagree. Assume the current domestic and international production capacities do not change. Note that the government cannot tax refineries in other countries.
b. Draw the new supply curve for Korea's gasoline production.
c. What effect will the tax have on the price of gasoline and the profits of the refineries during the winter? What effect will it have during the summer?
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