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Suppose that the demand for cigarettes is given by QD=2000-200P. The supply of cigarettes is Qs=800P. a) Find the price and quantity of cigarettes, assuming
Suppose that the demand for cigarettes is given by QD=2000-200P. The supply of cigarettes is Qs=800P. a) Find the price and quantity of cigarettes, assuming that the market is competitive. b) In an effort to reduce smoking, the government levies a tax of $1 per pack. Compute the quantity of cigarettes after the tax, the price paid by consumers, and the price paid by producers. How much revenue does the government gain from the tax? (Reminder: don't forget to solve the equations for P before graphing!) c) Who bears the bigger economic burden - consumers or producers? Why? Would you expect this to be the case in real life? Why or why not? d) Calculate the deadweight loss of the tax
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