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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.

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