n the United States, each state government can impose its own excise tax on the sale of cigarettes. Suppose that in the state of North Texarkana, the state government imposes a tax of $2.00 per pack sold within the state. In contrast, the neighboring state of South Texarkana imposes no excise tax on cigarettes. Assume that in both states the pre-tax price of a pack of cigarettes is $2.00. Assume that the total cost to a resident of North Texarkana to smuggle a pack of cigarettes from South Texarkana is $3.50 per pack. (This includes the cost of time, gasoline, and so on.) Assume that the tax is levied on the supplier. Part b. first option (Yes or No), 2nd option (higher or Lower)
n the United States, each state government can impose its own excise tax on the sale of cigarettes. Suppose that in the state of North Texarkana, the state government imposes a tax of $2.00 per pack sold within the state. In contrast, the neighboring state of South Texarkana imposes no excise tax on cigarettes. Assume that in both states the pre-tax price of a pack of cigarettes is $2.00. Assume that the total cost to a resident of North Texarkana to smuggle a pack of cigarettes from South Texarkana is $3.50 per pack. (This includes the cost of time, gasoline, and so on.) Assume that the tax is levied on the supplier. Part b. first option (Yes or No), 2nd option (higher or Lower)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
In the United States, each state government can impose its own excise tax on the sale of cigarettes. Suppose that in the state of North Texarkana, the state government imposes a tax of $2.00 per pack sold within the state. In contrast, the neighboring state of South Texarkana imposes no excise tax on cigarettes. Assume that in both states the pre-tax price of a pack of cigarettes is $2.00. Assume that the total cost to a resident of North Texarkana to smuggle a pack of cigarettes from South Texarkana is $3.50 per pack. (This includes the cost of time, gasoline, and so on.) Assume that the tax is levied on the supplier.
Part b. first option (Yes or No), 2nd option (higher or Lower).
Transcribed Image Text:b. Does it make sense to for someone to smuggle a pack
of cigarettes from South Texarkana to North Texarkana?
because the new equilibrium price in North
than the total cost of
Texarkana is
smuggling a pack from South Texarkana.
Transcribed Image Text:a. In the accompanying graph, move the "Supply + Tax" line
to depict the supply curve in the market for cigarettes in
North Texana after the tax is levied.
Price of Cigarettes
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
0
Market for Cigarettes- North Texarkana
Supply + Tax
1
2
6
3 4 5
7
Packs of Cigarettes (in thousands)
8
Supply
Demand
10
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