5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the price to $5 per pack and reduce the quantity demanded to 30 million packs at that price, while the quantity supplied at$3 per pack is now 30 million packs. a. Draw a supply and demand diagram of cigarettes before the tax. Label CS and PS b. On a new diagram, show the effect that the tax has by labeling the following i. New consumer surplus ii. New producer surplus iii. Government revenue from excise tax iv. Deadweight loss
5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the price to $5 per pack and reduce the quantity demanded to 30 million packs at that price, while the quantity supplied at$3 per pack is now 30 million packs. a. Draw a supply and demand diagram of cigarettes before the tax. Label CS and PS b. On a new diagram, show the effect that the tax has by labeling the following i. New consumer surplus ii. New producer surplus iii. Government revenue from excise tax iv. Deadweight loss
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
Problem 7PA
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Transcribed Image Text:5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of
cigarettes are sold. In order to recover some of the health care costs associated with smoking,
the government imposes a tax of $2 per pack. This will raise the price to $5 per pack and
reduce the quantity demanded to 30 million packs at that price, while the quantity supplied at$3
per pack is now 30 million packs.
a. Draw a supply and demand diagram of cigarettes before the tax. Label CS and PS
b. On a new diagram, show the effect that the tax has by labeling the following
i. New consumer surplus
ii. New producer surplus
iii. Government revenue from excise tax
iv. Deadweight loss
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