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A country which does not tax cigarettes is considering the introduction of a $0.40 per pack...

A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as:

QD = 140,000 - 25,000P QS = 20,000 + 75,000P,
and The country has hired you to

where
provide the following information regarding the cigarette market and the proposed tax.

  1. What are the equilibrium values in the current environment with no tax?

  2. What price and quantity would prevail after the imposition of the tax? What portion of the tax

would be borne by buyers and sellers respectively?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
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