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Suppose the demand function for cigarettes is given by QD = 120 - 4 P , and the supply is given by QS = 12

Suppose the demand function for cigarettes is given by QD = 120 - 4P, and the supply is

given by QS = 12P - 200.

(a) Obtain the equilibrium quantity Q and the equilibrium price P .

(b) Determine the price elasticity of the demand at the equilibrium point. Interpret your

result.

(c) Determine the range of prices and quantities for which the demand is elastic, and the

range of prices and quantities for which the demand is inelastic.

(d) Suppose the government introduces a price floor of p = 30. Compute the new

supplied and demanded quantities and determine if the floor produces an excess

or a shortage of supply.

Now, suppose the government does not introduce any price floor and instead introduces

a specific tax of = 5 to be levied from producers.

(e) Obtain the new supply curve that accounts for the presence of the tax.

(f) Determine the new equilibrium quantity and price.

(g) Compute the government revenue from the tax.

(h) Compute the incidence (burden) for the consumers.

(i) Compute the incidence (burden) for the producers.

(j) Compute the deadweight loss produced by the tax.

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