(Solution) - The diagrams below show the market for gasoline in two -(2025 Original AI-Free Solution)
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The diagrams below show the market for gasoline in two countries, Midas and Neptune. In Midas, demand is perfectly inelastic; in Neptune, demand is relatively elastic. In both countries, supply is identical and upward sloping. The government in each country imposes an excise tax of $t per litre on the producers of gasoline. This tax shifts the supply curve up by $r.
-1.png)
-2.png)
b. In each case, shade the area that is the excess burden of the tax.
c. In which country does the tax cause the greater allocative inefficiency? Explain.