Taxes End of Chapter Problem ; In the United States, each state government can impose its own excise tax on the sale of cigarettes. Suppose that in the state of ; North Texarkana, the state government imposes a tax of $2.00 per pack sold within the state. In contrast, the neighboring state i of South Texarkana imposes no excise tax on cigarettes. Assume that in both states the pre-tax price of a pack of cigarettes is ; $2.00. Assume that the total cost to a resident of North Texarkana to smuggle a pack of cigarettes from South Texarkana is ' $3.50 per pack. (This includes the cost of time, gasoline, and so on.) Assume that the tax is levied on the supplier. a. Suppose the demand for cigarettes in North Texarkana is perfectly inelastic, and the equilibrium quantity demanded is Market for Cigarettes in North Texarkana three thousand packs. Draw the new supply curve after the 5.0 Demand @@ Supply + Tax tax on cigarettes has been imposed. s 4.0 Supply 3.5 3.0 2.5 2.0 1.5 Price of Cigarettes (in dollars) 1.0 0.5 0.0 0 1 2 3 4 5 6 7 8 9 10 Packs of Cigarettes (in thousands) b. Is it cost effective to smuggle a pack of cigarettes from South Texarkana? No, because the cost of smuggling a pack of cigarettes is higher than the new equilibrium price in North Texarkana No, because the cost of smuggling a pack of cigarettes is lower than the new equilibrium price in North Texarkana C. bu Yes, because the cost of smuggling a pack of cigarettes is lower than the new equilibrium price in North Texarkana Sc Yes, because the cost of smuggling a pack of cigarettes is higher than the new equilibrium price in North Texarkana c. At what price would someone be just indifferent between buying a pack in North Texarkana and smuggling a pack from $ : South Texarkana