Suppose the market for cigarettes can be described as follows: Qs = P

Qd = 90-P

where Qs and Qd are, respectively, quantity supplied and quantity demanded (in appropriate units) and P denotes price (in dollars per carton of cigarettes). Suppose the government wants to discourage smoking. In an attempt to do so, it wants to tax the suppliers in a way to bring the price of a carton of cigarettes to $60. Using matrix algebra, find the per unit tax that will achieve this goal. (Do not use trial and error; if you do, you will receive little credit.) Discuss the incidence of the tax.

Expert Solution

Rahul Sunny answered 2 years ago

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