Gas Prices Hit Record Highs as States Eye Fuel Tax Pauses

When demand for a good is inelastic, buyers and sellers split the tax paid, but buyers pay more of the tax. So, when the gas tax is suspended, both buyers and sellers benefit, but buyers benefit more.

When the state tax is removed, consumers buy more gasoline and pay a lower price, so consumer surplus increases. Producers sell more gasoline and receive a higher price, so producer surplus increases. The quantity bought and sold increases but remains below the efficient quantity because the federal tax remains in place. The market becomes more efficient.