12. The following graph shows the supply 1QS = 2P2and demand 1QD = 12 = P2 for cigarettes. The government decides to impose $6 tax on each cigarette.

a. What is the producer surplus, consumer surplus, and social surplus when there is no tax on cigarettes?

b. With the tax, verify that the price paid increases to $8.

c. What are the tax revenue, producer surplus, and consumer surplus? What is the social surplus? What is the deadweight loss?

d. It appears that a tax on cigarettes lowers surplus. What argument can be made in support this tax? In other words, what have we failed to consider in our analysis?