Imagine an excise tax levied on the sellers of cigarettes. Assume that the tax is $2.00 per pack. Assume that the market for cigarettes is perfectly competitive. a. Draw a downward sloping market demand curve for cigarettes and an upward sloping supply curve. Draw the demand curve to represent fairly inelastic demand with respect to price (but not completely vertical.) Draw the supply curve to represent fairly elastic supply with respect to price (but not completely horizontal). Label the horizontal axis as the quantity of packs of cigarettes and the vertical axis the price per pack. b. What happens to the equilibrium quantity of cigarette packs once the tax is imposed? c. Is there a reduction in consumer and producer surplus? If so, show the reduction in the graph.

Imagine an excise tax levied on the sellers of cigarettes. Assume that the tax is $2.00 per pack. Assume that the market for cigarettes is perfectly competitive. a. Draw a downward sloping market demand curve for cigarettes and an upward sloping supply curve. Draw the demand curve to represent fairly inelastic demand with respect to price (but not completely vertical.) Draw the supply curve to represent fairly elastic supply with respect to price (but not completely horizontal). Label the horizontal axis as the quantity of packs of cigarettes and the vertical axis the price per pack. b. What happens to the equilibrium quantity of cigarette packs once the tax is imposed? c. Is there a reduction in consumer and producer surplus? If so, show the reduction in the graph.

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter4: The Market Forces Of Supply And Demand

Section: Chapter Questions

Problem 11PA

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