Answered: On a graph, show the effect of a per…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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TAX GRAPH

On a graph, show the effect of a per unit tax on SELLERS of cigarettes. (This requires you to think about the shape of the demand curve for cigarettes. You can assume a sort of neutral supply curve. Indicate the change in price and quantity from the tax. The consumer and producer surplus after the tax, the tax incidence on buyers and sellers and the deadweight losss. Who pays more of this tax?

[Note: In the book they talk about the effect of cigarette taxes on OTHER states. That's not what I'm talking about here. Just tell me about the market on which the tax is imposed.]

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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