US politicians from both parties occasionally propose cutting the federal gasoline tax (which is a unit tax) only during the summer months, when prices tend to increase. Assume that gasoline refiners run near full capacity during the summer, so they are unable to increase supply in the short term. Also assume that gasoline consumers have some ability to substitute away from gasoline (for example, by driving fewer miles). If this proposal were implemented, how would the benefit of the tax cut be divided between consumers and suppliers of gasoline? Use a diagram to support your answer.

  • CreatedMarch 25, 2015
  • Files Included
Post your question