The inhabitants of the country of Argonia smoked 19.2 billion packs of cigarettes. They paid an average retail price of
Posted: Thu Apr 28, 2022 11:53 am
The inhabitants of the country of Argonia smoked 19.2 billion packs of cigarettes. They paid an average retail price of 4.5 currency units per pack. a. Given that the elasticity of supply is 0.5 and the elasticity of demand is -0.4, draw the linear demand and supply curves for cigarettes. (Note: To draw the demand and supply curves, you must first construct the respective equations.) b. Cigarettes are subject to a national tax of about 40 cents (𝑡 = $0.40) per pack. What does this tax do with the market-clearing price and quantity? What is the new price the consumer pays, the price the seller receives, and what is the new market equilibrium quantity? c. What part of this tax will consumers and producers pay? Why does this distribution of the tax burden occur? Explain your answer. d. What is the amount of deadweight loss (IDE) in this economy as a result of the presence of the cigarette tax? explain your answer