Quote:
Originally posted by Tyrone Slothrop
Let's just set aside imports of refined gas for these purposes, artificial as that is.
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But that's you're problem. What you're positing isn't reality, it's the Soviet Union, where a level of supply is determined and adhered to regardless. You are correct that if supply is fixed at x barrels per day of gasoline, the sole determinant of price is where the demand curve crosses the fixed supply curve, and that the tax will simply raise consumer prices the amount of the tax. But the supply curve is not vertical, because oil companies can sell reserve gasoline and cut back production, especially in the short term. If their wholesale prices increase 20c, then imports would come in, terminals would be drawn down, and production might temporarily be increased (believe it or not a refinery can run above 100% capacity for short periods). That will cause prices to fall somewhat, meaning the equilibrium is somewhere below the full amount of the tax.
