In Country Oldtime, cigarettes are forbidden, so people trade cigarettes in a

black market. The cigarette demand is Q_D=10-2P, and the cigarette supply is Q_S=4P+4.

a: Find the equilibrium price and quantity in the black market.

In Country Oldtime, cigarettes are forbidden, so people trade cigarettes in a

black market. The cigarette demand is Q_D=10-2P, and the cigarette supply is Q_S=4P+4.

b: The government becomes aware of the black market and reinforces the

police so that half of the cigarette supply would be seized and destroyed. Under

this circumstance, what is the new equilibrium price and quantity?

In Country Oldtime, cigarettes are forbidden, so people trade cigarettes in a

black market. The cigarette demand is Q_D=10-2P, and the cigarette supply is Q_S=4P+4.

c: How does the consumer surplus change between (a) and (b)?

In Country Oldtime, cigarettes are forbidden, so people trade cigarettes in a

black market. The cigarette demand is Q_D=10-2P, and the cigarette supply is Q_S=4P+4.

d: Suppose that the government changes the policy and legalizes cigarette

dealings. Now cigarettes are traded in an open market. However, for every unit of

cigarettes bought, the buyer has to pay $1 tax to the government.What is the after-tax price paid by buyers? What is the actual after-tax price received by the sellers?

In Country Oldtime, cigarettes are forbidden, so people trade cigarettes in a

black market. The cigarette demand is Q_D=10-2P, and the cigarette supply is Q_S=4P+4.

e: Compare (b) and (d). Which policy do consumers prefer? Which policy

does the government prefer? Why?