Problem 1. Analyzing tax incidence 1. Draw the market demand and market supply in the market of
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Problem 1. Analyzing tax incidence
1. Draw the market demand and market supply in the market of cigarettes.
(a) What group is more sensitive to price changes, buyers or sellers? Justify your answer.
(b) Show what happens in this market if the Government taxes the producers of cigarettes.
(c) Who do you think ends up bearing a higher portion of the tax?
(d) How would your answers change by the introduction of vaping pens not subject to the same tax?
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