Assume that the demand for cigarettes is Qd=1600-30P and the supply of cigarettes is Qs=1400+70P.  Now, suppose the government levies a $2 tax for each unit of cigarettes sold. a. On a graph, identify the tax revenue generated by this tax.  Label each area on the graph with a letter.    b. Show in a table the consumer surplus and the producer surplus before and after the tax.    c. Indicate the deadweight loss associated with this tax.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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***This is a three-part question - EACH PART requires a solution/explanation*** 

 

1. Assume that the demand for cigarettes is Qd=1600-30P and the supply of cigarettes is Qs=1400+70P.  Now, suppose the government levies a $2 tax for each unit of cigarettes sold.


a. On a graph, identify the tax revenue generated by this taxLabel each area on the graph with a letter. 

 

b. Show in a table the consumer surplus and the producer surplus before and after the tax. 

 

c. Indicate the deadweight loss associated with this tax.

 

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