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Question 1 (Market Demand and Equilibrium) Suppose the demand for cigarettes is perfectly inelastic, while the supply of cigarettes slopes upward from left to right.

Question 1 (Market Demand and Equilibrium) Suppose the demand for cigarettes is perfectly inelastic, while the supply of cigarettes slopes upward from left to right. The equilibrium price of cigarettes is $5 and the equilibrium quantity is 100 packs.

a) Draw the market for cigarettes given the information above. Label the equilibrium point, axes, and any intercepts

b) What would happen if the price of cigarettes were $6 per pack and not at the equilibrium of $5 per pack? Would it stay at $6 per pack? Briefly explain.

c) Suppose that as a result of government anti-smoking campaigns, the demand for cigarettes decreases to 80 packs (but is still perfectly inelastic). What would happen to the equilibrium price (increase, decrease, not change)? What is the new quantity?

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