The Supply Curve and the Demand Curve for Cigars Are

question 151

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)The demand for cigars is less elastic than the supply of cigars.
• B)The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
• C)The deadweight loss of the tax is $12.50.
• D)All of the above are correct.

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