Suppose the Price of Gasoline Is $3

question 72

Multiple Choice

Suppose the price of gasoline is $3.50 per gallon, the quantity of gasoline demanded is 150 billion gallons per year, the price elasticity of demand for gasoline is -0.06, and the federal government decides to increase the excise tax on gasoline by $1.00 per gallon, which increases the price of gasoline by $0.75 per gallon.What is the new equilibrium quantity of gasoline demanded after the tax is imposed?

• A)109.72 billion gallons per year
• B)127.25 billion gallons per year
• C)148.27 billion gallons per year
• D)161.61 billion gallons per year

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Definitions:

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee's net income or loss.

Investee Earnings

The portion of income attributable to an investor from its investment in an associated company.

Cash Dividends

Payments made by a corporation to its shareholders from the company's profits.