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Continuing the conversation started in #4 above, if the goal of policy makers is to decrease...

Continuing the conversation started in #4 above, if the goal of policy makers is to decrease the consumption of gasoline by taxing the consumer, use price elasticity of demand to explain when the tax would be effective and when it would not be effective.

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Answer #1

Usually, the rise in the tax must decrease the consumption of gasoline but actual effectiveness would depend on the elasticity of demand for gasoline.

The tax would not be more effective if the elasticity of demand for gasoline is less than the one. An increase in the tax would not help to decrease the demand for gasoline substantially if the elasticity of demand is less than one.

on the other side, if the elasticity of demand is more than one, the tax on gasoline will be more effective in reducing the demand for gasoline.

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