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Re: Re: A Primer on the Gas Tax Holiday
by
Len Burman
Thank you for your comment.
I don't think it follows that there would be no price response to a tax increase. It may well be true that it would be much easier for refiners and wholesalers to withhold gasoline, especially in response to a temporary tax increase, than to increase the quantity supplied.
You are, of course, right that the tax, nominally paid by suppliers, would have no effect on the demand for gasoline, although a higher price would reduce the quantity demanded. It's easy to muddle this point in trying to explain market responses to lay people. My only slightly weak defense is that people who understand the convention that demand refers to the relationship between quantity demanded and price paid by consumers probably do not need us to explain the market dynamics. It would suffice to explain that supply is nearly perfectly inelastic with respect to price increases in the short run (and demand isn't).
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