Assume the Supply Curve for Cigars Is a Typical,upward-Sloping Straight

question 11

Multiple Choice

Assume the supply curve for cigars is a typical,upward-sloping straight line,and the demand curve for cigars is a typical,downward-sloping straight line.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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