Question
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
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 + 6P.You estimate the demand for cigarettes to be Qd = 200 - 2P.
You are asked to evaluate the likely effects of a tax on cigarettes equal to $10 per pack of cigarettes.Specifically, you are to file a report which predicts by how much this will reduce the amount of cigarettes sold.You are also asked to estimate the proportion of the tax that will be paid by the cigarette companies (sellers), and the proportion of the tax that will be paid by the smokers (consumers) of cigarettes.
a) What is the equilibrium price and quantity of cigarettes?
b) What is the price elasticity of demand for cigarettes at the equilibrium price?
c) What is the price elasticity of supply of cigarettes at the equilibrium price?
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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