A controversial issue in managing climate change is the effect of taxes on gasoline. Higher taxes would reduce the after-tax price received by gasoline producers. The price elasticity of the supply of gasoline has been estimated to be 2.0. (Source: David Austin and Terry Dinan, "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes,"Journal of Environmental Economics and Management, Vol. 50, No. 3, November 2005, pp. 562-582.)

(a)

Explain why the elasticity of supply with respect to price is positive.

(b)

Suppose that a tax on gasoline reduces the after-tax price of gasoline by 5%. By how much would suppliers reduce gasoline production?

(c)

Do you expect the impact of the tax on the production of gasoline to be smaller or larger in the short run as compared to the long run? Explain your answer.