Economists assert that an increase in gasoline tax can be used to move gasoline consumption towards...

Economists assert that an increase in gasoline tax can be used to move gasoline consumption towards both efficiency and sustainability. With the aid of a diagram explain how the use of a gasoline tax can bring about this result.

Expert Solution

The increase in the price of gasoline due to taxes will force people to reduce wastage and the consumption of gasoline would come down although the consumption of gasoline is not perfectly elastic. The increase in price will force people to use public means of transportation and encourage the more efficient use of the fuel. Despite a slight reduction in consumption the overall tax collected would increase. The surplus tax collection can be used by the government to implement stricter rules on pollution and spend money on various campaigns and programmes directed towards environmental protection.

The decrease in consumption would lead to the longer availability of the non-renewable gasoline.

It is clear from the graph than the elevation of taxes leads to a slight decrease in consumption but an overall increase in tax collected which can be used by the government for protecting environment.

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Rahul Sunny answered 2 years ago

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