In 2011, Americans smoked 16 billion packs of cigarettes. They paid an average retail price of $5.00 per pack.

1. Given that the elasticity of supply is 0.5 and the elasticity of demand is - 0.4, derive linear demand and supply curves for cigarettes.
2. Cigarettes are subject to a federal tax, which was about $1.00 per pack in 2011. What does this tax do to the market-clearing price and quantity?
3. How much of the federal tax will consumers pay? What part will producers pay?

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