A gas tax of one cent per gallon would raise one billion dollars per year at current consumption rates. Since a tax o...

Zach on March 24 at 02:32AM

Explanation of what incompatible Assumptions means.

I was just wonder if you could explain what is incompatible about the assumptions made by the author?

1 Reply

Skylar on March 24 at 05:58PM

@Zacfisch, happy to help!

When we refer to the assumptions as "incompatible" here, we mean that they are conflicting.

In specific, the two assumptions the author makes that conflict with each other are as follows:
(1) proportional to current consumption rates, the author concludes that "a tax of fifty cents per gallon would therefore raise fifty billion dollars per year"
(2) the author also says the tax would cause a "resulting drop in the demand for gasoline"

These two assumptions cannot both be true. If the first assumption is true and the tax raises an amount that is proportional to current consumption rates, then there would be no drop in demand like the second assumption says. If the second assumption is true and there is a drop in the demand for gasoline as a result of the tax, then the amount that the tax will raise would be lower than the estimates made in the first assumption based off consumption rates at the current level of demand.

Does that make sense? Please let us know if you have any other questions and best of luck with your studies!