ECON200 QUIZ3 - Name: -Quiz 3-Econ 200A 30 points- Maximum...

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1 Name: ------------------------------------- Quiz Section: ---------------- Q u i z 3 - E c o n 2 0 0 A Fall 2009 30 points- Maximum of 24 minutes allowed Answer Key 1. (10 points) Before 1920s there were no tax on cigarettes. After that time a tax of 10 cents per packet was imposed. How did this tax affect the choice of high quality versus low quality cigarettes purchased? Use the law of demand to explain your answer. This is a “shipping the good apples out” question. The sales of higher quality cigarettes goes up since after adding the 10 cents tax, the higher quality cigarettes become relatively less expensive. For example, suppose that before tax, the high quality cigarettes are $2 per pack and the low quality ones are $1 per pack. The relative price of high quality to low quality cigarette is 2. That is to buy one pack of high quality cigarettes, one would have to give up 2 packs of low quality one. After the tax, the high quality cigarettes are $2.10 per pack and the low quality one is $1.10 per pack.
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This note was uploaded on 02/06/2010 for the course ECONOMICS 200 taught by Professor Stiban,f during the Winter '10 term at University of Warsaw.

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ECON200 QUIZ3 - Name: -Quiz 3-Econ 200A 30 points- Maximum...

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