Most U.S. states impose gasoline taxes as a way to collect revenue. Assume that there are no market failures in this market. Show how a gasoline tax will create deadweight loss and reduce efficiency.
Most U.S. states impose gasoline taxes as a way to collect revenue. Assume that there are no market failures in this market. Show how a gasoline tax will create deadweight loss and reduce efficiency.
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 3CQQ
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1a) Most U.S. states impose gasoline taxes as a way to collect revenue. Assume that there are no market failures in this market. Show how a gasoline tax will create
b) Now suppose that gasoline consumption entails a negative externality through greenhouse gas emissions. Show how a properly designed gasoline tax could improve efficiency given this externality.
c) What would you need to know to determine the efficient size of a state’s gasoline tax?
d) True or False? If a state’s gasoline tax is higher than the amount needed to restore efficiency, it is clear evidence of a policy failure.
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