1.Suppose a public referendum is being held on whether or not to levy a tax on cigarettes.Currently, the supply of cigarettes is given by Qs = -100 + 30P.You estimate the demand for cigarettes to be Qd = 200 - 10P.

a) What is the equilibrium

price and quantity of cigarettes?

Q=-100+ 30(7.5)= 125 Units

The equilibrium price is $7.5

while equilibrium quantity is 125 units

b) What is the price

elasticity of demand for cigarettes at the equilibrium price?

Elasticity of demand= (7.5/125) x -10

Elasticity of demand= -0.6

c) What is the price

elasticity of supply of cigarettes at the equilibrium price?

Elasticity of supply= (7.5/125) x 30

Elasticity of supply= 1.8

d) What proportion of the tax will be paid by sellers?

e) What price will buyers pay after the tax is imposed?

f) What quantity of cigarettes will be sold after the tax?

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