There s a gas shortage in Gasland. You\'re presented with two proposals that wil

Question

There s a gas shortage in Gasland. You're presented with two proposals that will achieve the same level of reduction In the use of gas. Proposal A would force everybody to reduce their gas consumption by 13 percent (regulatory policy*. Proposal B would Impose a tax of 45 cents on the consumption of a gallon of gas. which would also achieve a reduction of 13 percent. Consumers of gas can be divided Into two groups-one group whose demand is elastic and another group whose demand is inelastic. How will the proposals affect each group? Proposal A would result in a lower quantity of oil demanded (movement along the demand curve) Proposal B would result in less oil demanded (demand curve shifts) With both proposals, each group will demand loss oil Their demand curves will shift down. Proposal A would result n loss oil demanded (demand curve shifts) Proposal B would result in a lower quantity of oil demanded (movement along the demand curve). With both proposal, the quantity of oil demanded will decline for each group, causing a movement down along each demand curve. Which group would support a regulatory policy? The group with elastic demand. The group with inelastic demand. Which would support a tax policy? The group with inelastic demand The group with elastic demand

Explanation / Answer

a. With both proposals, the gas demanded would decline.

b. The group with elastic demand will yield to regulatory decision

c. The group with inelastic demand will yield to tax.

By,

Nishant Bhatt

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