Refer to Figure 4-21. The figure above represents demand and supply in the market for cigarettes. Use the diagram to answer the following questions
a. How much is the government tax on each pack of cigarettes?
b. What portion of the unit tax is paid by consumers?
c. What portion of the unit tax is paid by producers?
d. What is the quantity sold after the imposition of the tax?
e. What is the after-tax revenue per pack received by producers?
f. What is the total tax revenue collected by the government?
g. What is the value of the excess burden of the tax?
h. Is this cigarette tax efficient?
a. $1.25
b. Consumer burden = $1.00
c. Producer burden = $0.25
d. Quantity traded = 18 billion
e. Net Price to seller = $1.25
f. Tax Revenue = $22.5 billion ($1.25 × 18 billion)
g. Excess burden (deadweight loss) = $1.25 billion (1/2 × $1.25 × 2 billion)
h. Yes, a tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.
You might also like to view...
If the CPI changes from 125 to 120 between 2015 and 2016, how did prices change between 2015 and 2016?
A) Prices increased by 25%. B) Prices decreased by 5% C) Prices decreased by 4%. D) Prices increased by 5%.
A sudden increase in immigration would be considered a(n):
A. interest-rate shock. B. short-run supply shock. C. long-run supply shock. D. A change in immigration would not affect any of these.
The marginal revenue product is
A) the change in total output resulting from a one-unit change in variable output. B) the change in marginal output resulting from a one-unit change in variable input. C) the change in total revenue resulting from a one-unit change in variable input. D) the change in marginal revenue resulting from a one-unit change in variable input.
The patent and copyright systems
a. reduce the cost of duplicating intellectual property b. help make the market for intellectual property more competitive c. are forms of intellectual property d. help increase the incentives to create new intellectual property e. help reduce the incentives to create new intellectual property