1. Determine burden of the tax under different demand conditions (i.e., when demand is D 1 andwhen demand is D 2 ). Who gets most of the burden of the tax under different demandconditions?2. Prove that the increase (or change) in the price is dependent on the elasticity of demandand supply, under different demand conditions (i.e., when demand is D 1 and when demandis D 2 ).3. What tax revenue is expected by the government if the demand for cigarettes is D 1 ? Is D 2 ? PROBLEMSuppose that a per-unit tax of 25 centavos per pack is placed on the sale of cigarettes by thegovernment, shifting the market supply of cigarettes from S to S' as shown. Answer thefollowing questions regarding this case.1. Determine burden of the tax under different demand conditions (i.e., when demand is D, andwhen demand is D.). Who gets most of the burden of the tax under different demandconditlons?2. Prove that the increase (or change) in the price is dependent on the elasticity of demandand supply, under different demand conditions (1.e., when demand is D, and when demandis D,).3. What tax revenue is expected by the government if the demand for cigarettes is D.? Is D?Note: Show supporting calculations.Price($ per pock)1.501.401.301.25 4ーーーーナ---------1.15D2Quantity(MAlions of oack)134 5

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Answered: Suppose that a per-unit tax of 25…

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Application: The Costs Of Taxation

Section: Chapter Questions

Problem 3CQQ

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Question

1. Determine burden of the tax under different demand conditions (i.e., when demand is D 1 and
when demand is D 2 ). Who gets most of the burden of the tax under different demand
conditions?
2. Prove that the increase (or change) in the price is dependent on the elasticity of demand
and supply, under different demand conditions (i.e., when demand is D 1 and when demand
is D 2 ).
3. What tax revenue is expected by the government if the demand for cigarettes is D 1 ? Is D 2 ?

PROBLEM
Suppose that a per-unit tax of 25 centavos per pack is placed on the sale of cigarettes by the
government, shifting the market supply of cigarettes from S to S' as shown. Answer the
following questions regarding this case.
1. Determine burden of the tax under different demand conditions (i.e., when demand is D, and
when demand is D.). Who gets most of the burden of the tax under different demand
conditlons?
2. Prove that the increase (or change) in the price is dependent on the elasticity of demand
and supply, under different demand conditions (1.e., when demand is D, and when demand
is D,).
3. What tax revenue is expected by the government if the demand for cigarettes is D.? Is D?
Note: Show supporting calculations.
Price
($ per pock)
1.50
1.40
1.30
1.25 4
ーーーーナ
------
---
1.15
D2
Quantity
(MAlions of oack)
13
4 5

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