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    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    This is an article in Fortune magazine written in November, you can read the article which will help you understand the questions, as you read the article think about elasticity, particularly the elasticity of DEMAND. As business people you will often read articles similar to this and you should be able to understand them and the economic principles involved. THINK AS BUSINESS PEOPLE and use the economics that we are studying.

    http://money.cnn.com/2008/11/17/news/economy/sloan_gastax.fortune/index.htm

    These are some excerpts from this article, read it for a full understanding of the author position.

    "As you doubtless know, they've fallen about 50% from the record levels they reached in July, making them one of the few bright spots in our economic picture."

    "So let me fulfill my traditional role of skunk in the garden party, and suggest that these lower gas prices aren't an unalloyed good thing. Let me also suggest that we jack them up, sharply, by adopting a big honking tax on gasoline."

    "A high tax would hold down gas consumption"

    "Having permanently high gas prices would let the market, rather than incomprehensible, loophole-ridden Corporate Average Fuel Economy regulations, make the decisions on what kind of vehicles Americans get to drive."

    "There are plenty of things we ought to do to establish rational, market-driven energy policies. We'll deal with those another day. But a gas tax would be a good first start. I don't expect to see that any time soon - but I can always hope"

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    Here are the questions:

    ·Why does he refer to this as market driven policy, explain?

    ·What role does elasticity of demand play in the author's position?

    ·Can you think of other instances where government will levy this type of tax (sales or excise tax) and why do they levy this type of tax?

    © BrainMass Inc. brainmass.com December 24, 2021, 7:53 pm ad1c9bdddf
    https://brainmass.com/economics/transport-and-agricultural-economics/discussion-questions-economics-fortune-magazine-227423

    SOLUTION This solution is FREE courtesy of BrainMass!

    Here are the questions:

    ?Why does he refer to this as market driven policy, explain?
    He refers to increasing the tax on gasoline prices as a market driven policy because of several reasons. First, if the price of gasoline had not fallen because of the market forces there would have been no need for imposing a tax to increase the price of gasoline. Second, it is the market forces that have created the past spike in the prices and the future spikes in oil prices that the author predicts would also be caused by market forces. So to counter these market forces the author wants the government to have a market driven policy.

    ?What role does elasticity of demand play in the author's position?
    Elasticity of demand plays an important role in the author's position. The demand for gasoline is inelastic because it is related to a necessity that is transportation and there are no close substitutes available. When the prices go up the customer is forced to shell out more money. Similarly when the prices go down the customer actually pays far less. The demand for gas is not highly sensitive to price. This is the reason the author wants the government to hold the price at a stable level by imposing a tax. The idea is that when the prices of oil spike in future, these taxes would be removed and the customer will not have to pay a higher price for oil. Price stability is needed because of the inelastic nature of demand for gas.

    ?Can you think of other instances where government will levy this type of tax (sales or excise tax) and why do they levy this type of tax?
    Other instances where the government will levy this type of tax is in case of essential food products. If the prices of food fall to a low level, then if there is a spike in the food prices the people will not be able afford essential food. It is because agricultural production may vary and there might be increases or decreases in prices but the government will want to maintain stable prices for two reasons. It will want to maintain a stable price of essential food products in the market. In addition, the government will want a stable income for farmers. Typically, if the price plummets, the government will impose a tax and use the money to support farmers.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 7:53 pm ad1c9bdddf>
    https://brainmass.com/economics/transport-and-agricultural-economics/discussion-questions-economics-fortune-magazine-227423

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