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Suppose that the government is raising money for funding lung cancer research by taxing cigarettes. If they raised the same amount by having a tax
Suppose that the government is raising money for funding lung cancer research by taxing cigarettes. If they raised the same amount by having a tax on income would individuals be better off or worse off? Illustrate your result by supposing that all individuals in this society share the same preferences as Mr. Vice, who consumes only cigarettes and alcohol, and whose preferences are represented by the utility function U(C, A) = In C + In A. All individuals have the same income, I. Denote by po and pa, the before tax prices of cigarettes and alcohol, respectively. Finally suppose that the government needs to raise R dollars in revenue
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