short answer 2 midterm 2 answers

short answer 2 midterm 2 answers - Short Answer (15 points...

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Short Answer (15 points total) 1) Consider the market for cigarettes. Suppose that the government decides to raise revenue by imposing a tax on the producers of cigarettes. Assume that the supply of cigarettes is more elastic than the demand for cigarettes. a. Show how a tax of T dollars on each pack of cigarettes will affect the equilibrium price and quantity of cigarettes in this market. Label the new equilibrium price and the after-tax price. (3 pts) As the picture below shows, equilibrium price goes up and equilibrium quantity goes down. Also, the tax reduces the amount that producers receive after taxes. b. On the same graph, label consumer surplus, producer surplus, tax revenue and deadweight loss after the imposition of the tax. (2 pts) c. Do producers or consumers pay for most of the tax? Explain. (1 pt) Consumers pay for most of the tax. Since the elasticity of supply is greater than the elasticity of demand, we know that consumers will pay for most of the tax. In the picture, the majority of the tax
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short answer 2 midterm 2 answers - Short Answer (15 points...

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