Question
Suppose that the government decides Australians should reduce the consumption of tobacco and, therefore, it imposes a tax on tobacco products. a. Should this tax
Suppose that the government decides Australians should reduce the consumption of tobacco and, therefore, it imposes a tax on tobacco products. a. Should this tax be imposed on producers or consumers? Explain using both words and a diagram. b. If the demand for tobacco becomes more elastic, will this tax be more effective or less effective in reducing tobacco consumption? (Hint: Draw two diagrams, side by side, with the same supply curve and different demand curves.) c. If the government also wants to maximise the tax revenue, should it impose taxes on tobacco products with high demand elasticity or low elasticity? Explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started