Problem 3 Taxes os axooutisves like to complain about the high taxes on gasoline

Question

Problem 3 Taxes os axooutisves like to complain about the high taxes on gasoline. They argue that their industry has a higher tax burden than most other industries. While it may be true that gasoline is heavily taxed, is it true that oil producers have a high tax burden? We analyze this question here. (a) Suppose consumers are not easily able to change their gasoline consumption when prices change. At the same time, oil companies can relatively easily increase or decrease gasoline production with changes in prices. Who is bearing most of the burden of gasoline taxes under this scenario? (oil companies or consumers?) Draw a diagram supporting your answer. Be sure to explain how you come to your conclusion

Explanation / Answer

No there will be no burden on the oil firms as the demand for oil consumption is inelastic in nature in terms of prices, oil firms can increase the prices of oil as consumption will not decrease due to inelastic demand, customer will bear the higher tax burden because demand does not change so rise in demand leads to rise the burden on the customer. And it's simply to say more inelastic the demand or supply burden of tax will be borne by customer and supplier respectively.

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