in 2011, Americans smoked 16 billion packs of cigarettes. They paid an averageretail price of$5.00 per pack. The elasticity of supply in the short run is 0.5and the elasticity of demand is0.4.

(a) Cigarettes are subject to a federal tax, which was about$1.00 per pack in2011. Using the formula described in class, how much of the federaltaxwill consumers pay? How much will producers pay?2

(b) In the long run, the supply is significantly more elastic, and the demandis a little bit more elastic. If the long run elasticity of supply is 1, and thelong run elasticity of demand is0.5, then will consumers' share of thetax be larger or small in the long run?