The Supply Curve and the Demand Curve for Cigars Are

question 156

Multiple Choice

The supply curve and the demand curve for cigars are straight lines.Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax.Then a tax of $0.50 per cigar is imposed.The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.The government's tax revenue amounts to $475 per month.Which of the following statements is correct?

• A)After the tax is imposed, the equilibrium quantity of cigars is 900 per month.
• B)The demand for cigars is more elastic than the supply of cigars.
• C)The deadweight loss of the tax is $12.50.
• D)The tax causes a decrease in consumer surplus of $380.

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