Opponents of increasing the tax on gasoline argue that the big oil companies just pass the...

Opponents of increasing the tax on gasoline argue that the big oil companies just pass the tax along to the consumers.

In the long run, demand for gas is more _________(Elastic/Inelastic) than in the short run. This means that oil companies pass _________ (More/Less) of the tax on to the consumers in the long run than they do in the short run.

Expert Solution

In the long run, demand for gas is more Elastic than in the short run. This means that oil companies pass Less of the tax on to the consumers in the long run than they do in the short run.

Explanation:

An important determinant of price elasticity of demand is the time period that we are considering. The longer the time period the more elastic will be the demand. Therefore, demand for gas is more elastic in the long run.

The tax burden depends on elasticity of buyers. The more elastic the demand, the lower the burden of the tax on buyers. Therefore, as demand for gas becomes more elastic in the long run, the tax burden on the consumers fall.

Rahul Sunny answered 2 years ago

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