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Government - imposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections. To understand the effect of
Governmentimposed taxes cause reductions in the activity that is being taxed, which has important implications for revenue collections.
To understand the effect of such a tax, consider the monthly market for cigarettes, which is shown on the following graph.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
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Market for Cigarettes
Suppose the government imposes a $perpack tax on suppliers.
At this tax amount, the equilibrium quantity of cigarettes is
packs, and the government collects $
in tax revenue.
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