Q = -0.25 x %P. So if price is to increase, how much could it rise for sales
to fall by 10% (we assume that the entire tax shows up in the
price at the pump).
We know that %Q = -0.25 x %P. So if price is to increase, how much could it rise for sales
to fall by 10% (we assume that the entire tax shows up in the
price at the pump).
%10 = -0.25 x %P or %P = 10%/-0.25 = 40% or .4
This means that the price of gasoline can increase by 40%. Since
the price is currently $1.00 this means a tax of 40 cents.
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