Economist Greg Mankiw has another interesting graphic up this week on gasoline taxes. It shows basically, the law of demand, showing that where gasoline taxes are higher (which results in higher prices), those nations consume considerably less gasoline.
(Source: Greg Mankiw's Blog)
2 comments:
I think that in nations like the United States the taxes are lower because of how many people are consuming it. A lot of people are consuming gas in this nation, so the tax can be lower, because the total revenue will be about equal to other nations. When you take the total revenues (of tax price and quantity) and average them, you get about .65 which most of the individual revenues are around that. Therefore, if less people are consuming the gas, you need to make the tax higher so that you will reach profit-maximization point and will not have to shut down. Nations who have a large consumption can tax less because so many people are buying, so the revenue will still be making profit.
-carolyn
The law of demand states that if the price of a product decreases decreases, demand and consumption of that product will increase. I agree with Carolyn that since USA consumes the most gas in the world, that the taxes are lower whereas in countries such as the Netherlands and Portugal, where the people may have substitues that do not require gasoline, taxes are more than the cost per gallon to help make up for the loss of consumption and to maximize there profits. The fact that the market for gasoline is inelastic explains why countries that impose high taxes recieve less consumption than countries that impose low taxes. With inelastic goods, if the price increases, demand and consumption decreases and vice versa.
-Gautam
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