Question

Suppose government imposes $2 tax on each liter of petrol purchased and all petrol

vehicle users require paying the same.

i. Draw a demand and supply diagram of the market for petrol without the tax. Show the

price paid by consumers, price received by producers and the quantity of petrol sold.

What is the difference between price paid by consumers and received by producers?

ii. Draw a demand and supply diagram of the market for the petrol with the tax. Show the

price paid by consumers and received by producers and the quantity of petrol sold.

What is the difference between the price paid by consumers and received by

producers? Has the quantity of petrol sold increased or decreased?

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Answer 1

Answer:

Draw a demand and supply diagram of the market for petrol without the tax. Show the

price paid by consumers, price received by producers and the quantity of petrol sold.

What is the difference between price paid by consumers and received by producers?

ii. Draw a demand and supply diagram of the market for the petrol with the tax. Show the

price paid by consumers and received by producers and the quantity of petrol sold.

What is the difference between the price paid by consumers and received by

producers? Has the quantity of petrol sold increased or decreased?

Explanation:

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