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Economics

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?

Solution Preview

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 ...

Solution Summary

Economics is discussed very comprehensively in this explanation..

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