ECN 104 Chapter 7: .docx
Document Summary
Gasoline is . 05/litre before tax, a tax of sh. 25 is imposed, after tax is becomes . 25, the price paid for consumers rises by sh. 20, and the price received by producers falls only sh. 05 from . 05 (. 00: a low price elasticity of demand means that consumers have few substitutes, and so little alternative to buying higher priced gasoline, a high price elasticity of supply results from the fact that producers have many production substitutes for their gasoline (other uses for crude oil from which gasoline is refined from) The sellers receive only . 50 (6. 50 5) after tax, and the buyers only pay sh. 50 more: the price elasticity is very low, because the lots used for parking spaces have very few alternatives, the price elasticity of demand is high because consumers can easily switch from the downtown parking lot, to other parking spaces a few minutes away.
