which they currently own.However,in the bng run,a new product will be purchased.Thus the long-run demand curve is more inelastic than the short-rn one. Consider the effect ofimposing a2 percent sales tax on automobiles in the short and long run.To analyze the influence of the tax,we can shift the demand curves because consumers are foroed to pay a higher price.Notice that this tax is an ad valorem tax.The demand curve does not shift parallel to the old one.but pivots reflect the higher tax paid per unit at higher prices. The burden of the tax shifts from short run (Fig e 9.15.a)to the s run is the consumer's price,Ps is the producer's pric,and PoPs is the value of the tax. Intuitively,we may assume consumers have a more inelastic demand curve in the long run.They are less able to adiust their demand to price changes and must carry a larger burden of the tax.In both figures,the supply curve is the same in the ng and short run.If the supply curve is more el ie in the long run,then even more of the tax burden is shifted to consumers. Unlike the automobile market,the gasoline demand curve is not characterized by a stock adjustment effect.The long-run demand curve will be more elastic than the short-run one,because in the long run substitutes(e.g.gasohol or propane)will become available for gasoline.We may analyze the effect of the tax on gasoline in the same manner as the tax on automobiles.However,the gasoline tax is a per unit or specific tax so the demand curvesexhibit a parallel shift In Figures 9.15.c and 9.15.d,the tax burden shifts from consumers to producers as we move from the short to the long run.Now the elasticity ofdemand increases from the short run to the bng run (the usual case),resulting in less gasoline consumption.Also,if the supply curve is more elastic in the bong run,some of the burden would again be shifted back to consumers Note that we have drawn demand curve shifts in both cases,assuming the consumers pay the tax.The same results may be obtained by shifting the supply curve,assuming the firms pay the tax. which they currently own. However, in the long run, a new product will be purchased. Thus, the long-run demand curve is more inelastic than the short-run one. Consider the effect of imposing a 20 percent sales tax on automobiles in the short and long run. To analyze the influence of the tax, we can shift the demand curves because consumers are forced to pay a higher price. Notice that this tax is an ad valorem tax. The demand curve does not shift parallel to the old one, but pivots to reflect the higher tax paid per unit at higher prices. The burden of the tax shifts from producers to consumers as we move from the short run (Figure 9.15.a) to the long run (Figure 9.15.b). In these figures, PO is the consumer’s price, PS is the producer’s price, and PO - PS is the value of the tax. Intuitively, we may assume consumers have a more inelastic demand curve in the long run. They are less able to adjust their demand to price changes and must carry a larger burden of the tax. In both figures, the supply curve is the same in the long and short run. If the supply curve is more elastic in the long run, then even more of the tax burden is shifted to consumers. Unlike the automobile market, the gasoline demand curve is not characterized by a stock adjustment effect. The long-run demand curve will be more elastic than the short-run one, because in the long run substitutes (e.g., gasohol or propane) will become available for gasoline. We may analyze the effect of the tax on gasoline in the same manner as the tax on automobiles. However, the gasoline tax is a per unit or specific tax, so the demand curves exhibit a parallel shift. In Figures 9.15.c and 9.15.d, the tax burden shifts from consumers to producers as we move from the short to the long run. Now the elasticity of demand increases from the short run to the long run (the usual case), resulting in less gasoline consumption. Also, if the supply curve is more elastic in the long run, some of the burden would again be shifted back to consumers. Note that we have drawn demand curve shifts in both cases, assuming the consumers pay the tax. The same results may be obtained by shifting the supply curve, assuming the firms pay the tax