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A pack of cigarette is $1.50 per pack and the quantity sold and bought is 200,000 packs per day. Assuming an

elasticity of demand of -0.85 and elasticity of supply of 2.5,

(a) Calculate the tax revenue and excess burden if the excise tax on each pack of cigarette is $1.50.

(b) Suppose the elasticity of demand is -0.45 and the elasticity of supply is 1.05, what is the incidence of the tax on (i) the consumers (ii) the producer

(c) What is the new tax revenue and excess burden?

Top Answer

a) Tax revenue = $300000 DWL = $192000 b) i) Burden on... View the full answer

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