The pretax market equilibrium corre

The pretax market equilibrium corresponds to point B. The decrease in demand caused by the tax results in a new market equilibrium corresponding to point A. At that point, the market price of gasoline falls to 90 cents per gallon. This is now the gross price received by sellers, because they are not liable for the tax. This is exactly the amount that sellers received per gallon, after taxes, when they were liable for the tax (see Figure 11.2)! However, the total amount paid by buyers for each gallon is $1.15, because in addition to paying the market price of 90 cents per gallon, they also have to pay the tax of 25 cents on each gallon that they purchase. This corresponds to point C on the original demand curve, D. The total amount that buyers pay per gallon, including the tax, is exactly the same as the market price of gasoline that would prevail if the tax were collected from sellers.