Question

In: Economics

Excise tax rates on tobacco and tobacco products increase in March and September based on average...

Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of $30, how much is the before tax price?

Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco products. Explain in detail who pays the tax (buyers and/or sellers) and discuss the role the price elasticity of demand plays in determining the impact on prices and quantity of tobacco products sold. Be explicit about any assumptions made in developing predictions.

Solutions

Expert Solution

Cigarettes excise tax rates vary across different states in USA. The average State cigarette tax is 1.72$ per pack.

Reference- https://www.tobaccofreekids.org/assets/factsheets/0097.pdf

If a standard pack is sold at $30 the before tax price is $28.28.

Initial equilibrium is at point e at the intersection of demand and supply curve. When a tax is levied on the sellers of tobacco products the supply curve decreases from the amount of tax. The new supply curve is s1 and the new equilibrium is at E1. The price paid by buyers increases from p to p1 and price received by sellers decreases from p to p2 and quantity reduces from q to q1.

A tax increases price paid by buyers and reduces price received by sellers and reduces quantity.

As can be seen from the below figure, when a tax is levied on any good the price paid by the buyer increases but this increase depends upon the elasticity of demand for that good.. When demand is more elastic than supply, producers bear most of the cost of the tax. Tax revenue is larger the more inelastic the demand and supply are.


Related Solutions

Question 1 Excise tax rates on tobacco and tobacco products increase in March and September based...
Question 1 Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of $30, how much is the before tax price? Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco...
Elasticity of demand The Czech government has raised the excise tax on tobacco products several times....
Elasticity of demand The Czech government has raised the excise tax on tobacco products several times. Using price elasticity of demand, describe the potential impacts of this increase on the demand for cigarettes
How to explain the impact of the operation of an excise tax on tobacco sales with...
How to explain the impact of the operation of an excise tax on tobacco sales with a demand and supply curves? Including the role of price elasticity.
Based on the following table of the tax rates, what is the average tax rate for...
Based on the following table of the tax rates, what is the average tax rate for a firm with taxable income of $120,000? Taxable Income ($) Tax Rate 0 – 50,000 15% 50,000 – 75,000 25% 75,000 – 100,000 34% 100,000 – 335,000 39% A. 20% B. 25% C. 34% D. 39%
In addition to the tax increase, what anti-tobacco movement will affect the tobacco market? Take an...
In addition to the tax increase, what anti-tobacco movement will affect the tobacco market? Take an example and explain its effect in terms of a supply and demand curve, please.
Based on the following table of the tax rates, what is the average tax rate for a firm with taxable income of $120,000?
Based on the following table of the tax rates, what is the average tax rate for a firm with taxable income of $120,000?Taxable Income ($)Tax Rate0 – 50,00015%50,000 – 75,00025%75,000 – 100,00034%100,000 – 335,00039%39%20%34%25%None of the above
Explain the implications of a 5% VAT removal and excise tax on petroleum products along the...
Explain the implications of a 5% VAT removal and excise tax on petroleum products along the following lines i. horizontal equity ii. vertical equity iii. Efficiency
It is March and Bank A is concerned about what an increase in interest rates will...
It is March and Bank A is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $101.1 million and Bank A management intends to liquidate $1.1 million in bonds in June to fund additional corporate loans. If interest rates rise to 6% the bond will sell for $1 million with a loss of $100000.Bank A's management sells 10 June Treasury bond contracts at 109-050...
Define and Discuss Average and Marginal Tax rates
Define and Discuss Average and Marginal Tax rates
Given the tax rates shown in the table, what is the average tax rate for a...
Given the tax rates shown in the table, what is the average tax rate for a firm with taxable income of $226,000? Taxable Income Tax Rate $0 - 50,000 15% $50,000 - $75,000 25% $75,000 - $100,000 34% $100,000 - $335,000 39% Group of answer choices 31.59 percent 36.79 percent 33.81 percent 39.00%
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT