Suppose the supply curve for cigarettes can be expressed as P=100 + 6Qand the demand curve for cigarettes can be expressed asP= 500- 2Qwhere P is the price of cigarettes andQis the quantity of cigarettes.

(a) Show how to solve for equilibrium quantityQe and pricePe of cigarettes, total expenditure

on cigarettesTe, and total revenue cigarette producers receive in equilibrium TRe.

(b) Suppose the government considers cigarettes as undesirable product in the society and

imposes a tax on the producers at$8on each unit they produce. Demonstrate how to compute the quantity purchased Q' the price the consumers pay Pc, the price the producers

keep Pp, total expenditure on cigarettes TE', total revenue cigarette producers keep TR',

and the tax revenue the government receives T'.

(c) Compute the demand elasticity from part (a) and part (b). Plot all the results in a properly labeled graph. How can you use the graph and the demand elasticity to help you explain the difference in total expenditure on cigarettes between part (a) and part (b).