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Assume that the demand for gasoline is inelastic. The government
imposes a sales tax on gasoline. The tax revenue is used
to fund research into clean fuel alternatives to gasoline, which
will improve the air we all breathe.
a. Who bears more of the excess burden of this tax: consumers
or producers? Show in a diagram who bears how
much of the excess burden.
b. Is this tax based on the benefits principle or the ability-topay
principle? Explain.

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