1. Explain fully why taxing a product leads to deadweight loss. Use appropriate graphs to explain why the deadweight loss is greater the more elastic the demand for a product. Focus only on the elasticity of demand, not supply.
2. Governments often claim that they impose high taxes on cigarettes because smoking is bad for your health. They claim that the high taxes are intended to discourage your consumption. Use your understanding of the elasticity of demand to dispute this claim, assuming that cigarettes have a very inelastic demand. Illustrate with a graph. Hint: Very inelastic is not the same as inelastic or perfectly inelastic.
3. Supposing that Canada and China were the only two countries in the world, why would it be impossible for Canada to import a greater value of goods from China than the value we export to China, even if China produced most goods more cheaply than Canada? Use this example to explain why increasing our imports from China can never create unemployment in Canada.