Suppose that the market demand-and-supply curves for the gasoline market are given below. In each case, quantity refers to millions of liters of gasoline/month: Qd is the quantity demanded; Qs is the quantity supplied; p is the price per liter (in cents).
p = 350 - 24Qd
p = 140 + 6Qs
1. What is the market equilibrium quantity and price?
2. Now suppose the government collects a sales tax of 46 cents/liter on gasoline suppliers. What is the new equilibrium quantity and price? What is the price that consumers pay now? What is the price that suppliers receive now? (Hint: derive the new supply curve first)
3. How many million dollars of tax revenue are collected by the government? (You should use the information provided in Part (b) only; tax revenue = tax/liter* liters sold) What percentage share of this tax revenue is paid by suppliers? What percentage share of this tax revenue is pass-through to consumers?