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Suppose the supply-and-demand schedules for cigarettes are as follows: What are the equilibrium price and equiiibrium quantity? Now the government levies a $1.25 per carton excise tax on cigarettes. What are the new equilibrium price paid by consumers, the price received by producers, and the quantity? Explain why it makes no difference whether Congress levies the $1.25 tax on the consumer or the producer. (Relate your answer to the discussion of the payroll tax in the text.) Suppose the tax is levied on the producers. How much of the tax are producers able to shift onto consumers? Explain how they manage to do so. Will there be any excess burden from this tax? Why? Who bears this excess burden? By how much has cigarette consumption declined on account of the tax? Why might the government be happy about this outcome, despite the excess burden?

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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Chapter
Section
BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 17, Problem 3TY
Textbook Problem
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Suppose the supply-and-demand schedules for cigarettes are as follows:

  1. What are the equilibrium price and equiiibrium quantity?
  2. Now the government levies a $1.25 per carton excise tax on cigarettes. What are the new equilibrium price paid by consumers, the price received by producers, and the quantity?
  3. Explain why it makes no difference whether Congress levies the $1.25 tax on the consumer or the producer.

Chapter 17, Problem 3TY, Suppose the supply-and-demand schedules for cigarettes are as follows: What are the equilibrium

(Relate your answer to the discussion of the payroll tax in the text.)

  • Suppose the tax is levied on the producers. How much of the tax are producers able to shift onto consumers? Explain how they manage to do so.
  • Will there be any excess burden from this tax? Why? Who bears this excess burden?
  • By how much has cigarette consumption declined on account of the tax? Why might the government be happy about this outcome, despite the excess burden?
  • This textbook solution is under construction.

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