A Country Which Does Not Tax Cigarettes Is Considering the Introduction

question 74

Essay

A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as:
Q_D = 140,000 25,000P Q_S = 20,000 + 75,000P,
where Q = daily sales in packs of cigarettes, and P = price per pack. The country has hired you to provide the following information regarding the cigarette market and the proposed tax.
a. What are the equilibrium values in the current environment with no tax?
b. What price and quantity would prevail after the imposition of the tax? What portion of the tax would be borne by buyers and sellers respectively?
c. Calculate the deadweight loss from the tax. Could the tax be justified despite the deadweight loss? What tax revenue will be generated?

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Definitions:

Coxal Bone

The hip bone, comprising the ilium, ischium, and pubis, forming part of the pelvis.

Brachium

An anatomical term referring to the upper arm area located between the shoulder and the elbow.

Sesamoid

A type of bone embedded within a tendon or muscle, usually found in locations where a tendon passes over a joint, such as the kneecap.

Acromioclavicular Joint

A joint at the top of the shoulder where the acromion of the scapula and the clavicle meet.