Draw a graph to show the effects of the $3 tax on the buyer’s price, the seller’s price, the quantity of cigarettes bought, the tax revenue, the consumer surplus, the producer surplus, and the excess burden of the tax. Does the buyer or seller pay more of the tax? Why?

Use the following information to work Problems 1 and 2. In 2002, New York State raised the cigarette tax by 39¢ to $1.50 a pack. Then New York City raised the tax from 8¢ to $1.50 a pack. The total tax increased to $3 a pack, and the price of cigarettes rose to $7.50 a pack—the highest in the nation. The average income of smokers is less than that of non-smokers.