Question

(Description of graph: The following diagram shows the effects of tax increase on price and quantity of cigarettes. The initial equilibrium values before tax increase occurs at the equilibrium Quantity of 20 billion packs of cigarettes at the equilibrium price of $4.50. Assume the government increases the tax rate on cigarettes per pack, and this action of the government shifts the supply curve to the left. The new equilibrium values after tax increase are new equilibrium Quantity of 18 billion packs of cigarettes at the new equilibrium price of $5.50. Note also that the minimum producers’ price along supply graph at new equilibrium after tax increase is $4.25 per pack of cigarettes.)

a. How much is the per-unit (pack) tax on cigarettes? Show your work. b.What price do consumers pay after the tax? c.How much tax revenue is collected? Show your work. d.What is the amount of deadweight loss after the tax is imposed on cigarettes? Show your work.

Answer 1