Question

8. Suppose the inverse demand equation for unleaded gasoline is P = 16−2Q, and the inverse supply equation is P = 0.5Q, where P is per gallon price. The government decides to impose a $1 excise tax on gas. Gas stations file the tax. How much does a consumer pays for each gallon in equilibrium after the imposition of tax? How much does a gas station get for each gallon sold?

A. Gas station gets $4 per gallon, consumer pays $3 per gallon.

B. Gas station gets $3 per gallon, consumer pays $4 per gallon.

C. Gas station gets $3 per gallon, consumer pays $3 per gallon.

D. Gas station gets $4 per gallon, consumer pays $4 per gallon.

I understand the concept that because the Gas Station pays the tax, they will receive less than the customer pays. However, I cannot reach the answer or either 3 or 4. Can someone please explain how to get either 3 or 4 from the information above?

Answer 1

Answer 2