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.

Expert Solution

Answer) When a government imposes an excise tax on a good it will shift the supply curve leftward which creates a wedge between the supply curve and the demand curve, forcing a new equilibrium where the amount paid by the consumer is greater than the amount received by the producer.

The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden. 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.

Rahul Sunny answered 2 years ago

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...

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...

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