Figure 20P-1 shows a hypothetical market for gasoline.

a. Suppose an excise tax of $1.50 per gallon is levied on gasoline suppliers. Draw the after-tax supply curve. What price will consumers pay? What price will sellers receive?

b. How much government revenue will result from the tax?

c. Suppose the tax is raised to $3 per gallon. Draw the new after-tax supply curve. How much additional revenue will this raise compared to the $1.50 tax?

d. Suppose the tax is raised again to $4.50 per gallon. Draw the new after-tax supply curve. Does this newest tax increase cause tax revenue to increase, decrease, or remain the same as compared to the $3 per gallon tax?

Figure 20P-1:

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Price (S) 10 2 2 3 4 5 6 7 8 Gal. of gasoline (millions) 10