Question

To cope with the high price of gasoline in the U.S., one possible public policy would be to temporarily reduce or eliminate the federal excise tax on gasoline during busy travel seasons. Each of the following would be an effect of this policy EXCEPT to

Multiple Choice

• raise the quantity demanded of gasoline.

• raise the demand of gasoline.

• raise the supply of gasoline.

• encourage more driving.

Answer 1

The answer is b) raise the demand of gasoline. Explanation: As the public policies of the U.S. will impact the demand side of the gasoline and have no impact on the supply side, because the cost of gasoline for the U.S. government will remain the same. Which will make a negative impact on the policy intended outcome.

Option a), c), d) are incorrect. Explanation: Since U.S. government decides to lay-off the excise tax on the gasoline, this will lead to a decrease in price and when price of a commodity decreases it's demand increases. So, the cheaper gasoline will raise demand.