President Biden has proposed a $2.2 trillion Infrastructure package to repair roads and bridges. The exact source of the funds is unclear at the time of construction of this exam, but some policy analysts think that at least one part of the funding will be an increase in the federal excise tax on gasoline. Suppose the size of this increase in excise tax is written as t. Using a graph and equilibrium, analyze and explain the impact of this t dollars per gallon increase in excise tax on gasoline. Which of the curve(s), if any, would shift, and why? Graphically, show the new equilibrium price and quantity (labeling it P1 and Q1).At the new equilibrium, please determine how much of the tax increase was borne by gasoline consumers and how much was absorbed by gasoline sellers? Indicate the incidence of taxation for both consumers and sellers on the graph and explain.What will determine whether consumers or sellers will bear a higher relative burden of taxation? Please explain in detail.

It is given that the U.S. government has proposed a $2.2 billion infrastructural investment package.…

Answered: President Biden has proposed a $2.2…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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President Biden has proposed a $2.2 trillion Infrastructure package to repair roads and bridges. The exact source of the funds is unclear at the time of construction of this exam, but some policy analysts think that at least one part of the funding will be an increase in the federal excise tax on gasoline. Suppose the size of this increase in excise tax is written as t.

Using a graph and equilibrium, analyze and explain the impact of this t dollars per gallon increase in excise tax on gasoline. Which of the curve(s), if any, would shift, and why? Graphically, show the new equilibrium price and quantity (labeling it P₁ and Q₁).
At the new equilibrium, please determine how much of the tax increase was borne by gasoline consumers and how much was absorbed by gasoline sellers? Indicate the incidence of taxation for both consumers and sellers on the graph and explain.
What will determine whether consumers or sellers will bear a higher relative burden of taxation? Please explain in detail.

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