There’s a gas shortage in Gasland. You’re presented with two proposals that will achieve the same level of reduction in the use of gas. Proposal A would force everybody to reduce their gas consumption by 7 percent (regulatory policy). Proposal B would impose a tax of 50 cents on the consumption of a gallon of gas, which would also achieve a reduction of 7 percent. Consumers of gas can be divided into two groups - one group whose demand is elastic and another group whose demand is inelastic.
Question - How will the proposals affect each group?
a. With both proposals, each group will demand less oil. Their demand curves will shift down.
b. Proposal A would result in a lower quantity of oil demanded (movement along the demand curve). Proposal B would result in less oil demanded (demand curve shifts).
c. Proposal A would result in less oil demanded (demand curve shifts). Proposal B would result in a lower quantity of oil demanded (movement along the demand curve).
d. With both proposals, the quantity of oil demanded will decline for each group, causing a movement down along each demand curve.