Problem 44 Use the graph below of the market for cigarettes

Problem 4.4, Use the graph below of the market for cigarettes to answer the following questions. Price (dollars per pack) 10 90 4 0) 0 4 812 16 20 24 28 32 36 40 44 Quantity (billions of packs per year) Suppose the government imposes a $3 per pack tax on cigarettes. What price do buyers pay after the tax? OA. $6 OB. $5 OC. $7 OD. $8 What price do producers receive after the tax? OA. $2 0 B. $5

Solution

Tax shifts supply curve to left. And leads to increase in market price and decrease in equilibrium quantity.

At q =12 units new supply curve will intersect old demand curve. New. Equilibrium price will be 7 and q =12

1. Price paid by buyers = C. 7$

2. Price received by suppliers = 7-3=4$