Suppose that the government imposes a tax on cigarettes. Use the diagram below to answer thequestions. D is the demand curve before tax, S is the supply curve before tax and ST is the supply curveafter the tax.(b) Calculate the consumer surplus before the tax.PriceAnswer:18121010 12QuaFor the market for cigarettes with the tax. Indicate:Price received by producersthe taxQuantity of cigarettes soldPrice paid by consumersPrice paid by consumersthe taxPrice received by producersQuantity of cigarettes soldS PhotoGrid

Answered: Suppose that the government imposes a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Step 1 Introduction to the concept

In the above problem, the tax is imposed on cigarettes will eventually increase the cost of producing them. This will reduce the supply of cigarettes as shown in the above diagram, the supply curve shifted leftward from S to St.

There is an inverse relationship between change in input cost of production and the supply of product or services, as the output becomes expansive for the producer this reduces the interest of the producers to supply more. As the profit of the producer gets reduced.

The effect on the supply curve is the same as the change in the amount of tax. As shown in the above diagram, the supply shifted from 12 units to 10 units, hence the amount of tax changed or imposed is the same as $2.