Cigarette smoking causes external costs; it is an example of negative demand-side externality. Government wants to discourage cigarette smoking without outright banning it.

(a) Draw a suitable graph to depict the external costs generated by cigarette smoking. [3 points]

(b) Government decides to levy a sales tax on cigarettes. Under what situation would the consumers bear this tax burden solely? [1 point]

(c) Suppose instead, government passes a law that would require smokers to pay a higher health insurance premium. Under what condition will this discourage smoking?