Multiple Choice
A tax was levied upon buyers of a good. What is the amount sellers receive after the tax is imposed?
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6. Introduction to Taxes and Subsidies
Introducing Taxes and Tax Incidence
Multiple Choice
Which of the following is the primary reason governments impose an excise tax on gasoline?
A
To encourage higher consumption of gasoline
B
To generate revenue for public spending
C
To reduce the price of gasoline for consumers
D
To increase the supply of gasoline
Verified step by step guidance1
Understand what an excise tax is: it is a tax imposed on a specific good, such as gasoline, usually per unit sold.
Consider the typical objectives of governments when imposing excise taxes, which often include generating revenue, discouraging consumption of harmful goods, or correcting externalities.
Analyze each option in the context of an excise tax on gasoline: encouraging higher consumption is unlikely because taxes usually increase prices, reducing consumption; reducing the price for consumers contradicts the effect of a tax, which tends to raise prices; increasing supply is not a direct effect of a tax, as taxes generally increase costs for suppliers.
Recognize that one primary and common reason governments impose excise taxes on gasoline is to generate revenue that can be used for public spending, such as infrastructure or environmental programs.
Conclude that the correct reason aligns with the government's goal to generate revenue rather than encouraging consumption, lowering prices, or increasing supply.
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