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Unformatted text preview: (b) In the diagram, identify the revenue that the tax generates for the govern-ment. (c) Show how the eect of the tax depends on the price elasticities of demand and supply. Are there elasticities for which the tax has no eect on the number of cigarettes sold? Are there elasticities for which the tax will raise very little revenue? 2. If the external costs of a pack of cigarettes is 33 cents, should the tax per pack of cigarettes be higher, the same, or lower than 33 cents if we believed in the rational addiction model? What if we believed in rational addiction with time inconsistency? with myopia? Explain your answers....
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- Spring '11