Question

(P) Quantity (packs) Willingness to pay (OD) Willingness to sell (Os) 400 0 $16 300 $4 $12 200 $8 $8 100 $12 $4 0 $16 0 a. (4 points) Graph and label the supply and demand curves for the cigarette market. Label the equilibrium price and quantity. Area of A = \frac{1}{2}(b)(h) Area of Rect = (b) \times (h) ?(Q) b. (3 points) Suppose the government finds that smoke from cigarettes causes medical issues with a cost to citizens of $8 per pack used. What sort of policy (tax or subsidy) should the government use, and how large should the tax/subsidy be? c. (7 points) Draw the effect of instituting the tax/subsidy you chose in part (b) on the graph in a. Label the new equilibrium and shade the area that represents the tax revenue or subsidy amount and the deadweight loss.

          (P)
Quantity (packs) Willingness to
pay (OD)
Willingness to
sell (Os)
400
0
$16
300
$4
$12
200
$8
$8
100
$12
$4
0
$16
0
a. (4 points) Graph and label the supply and demand curves for the cigarette market. Label the equilibrium price and quantity.
Area of A = \frac{1}{2}(b)(h)
Area of Rect = (b) \times (h)
?(Q)
b. (3 points) Suppose the government finds that smoke from cigarettes causes medical issues with a cost to citizens of $8 per pack used. What sort of policy (tax or subsidy) should the government use, and how large should the tax/subsidy be?
c. (7 points) Draw the effect of instituting the tax/subsidy you chose in part (b) on the graph in a. Label the new equilibrium and shade the area that represents the tax revenue or subsidy amount and the deadweight loss.

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(P)
Quantity (packs) Willingness to
pay (OD)
Willingness to
sell (Os)
400
0
16
3004
12
2008
8
10012
4
016
0
a. (4 points) Graph and label the supply and demand curves for the cigarette market. Label the equilibrium price and quantity.
Area of A = (1)/(2)(b)(h)
Area of Rect = (b) ×(h)
?(Q)
b. (3 points) Suppose the government finds that smoke from cigarettes causes medical issues with a cost to citizens of 8 per pack used. What sort of policy (tax or subsidy) should the government use, and how large should the tax/subsidy be?
c. (7 points) Draw the effect of instituting the tax/subsidy you chose in part (b) on the graph in a. Label the new equilibrium and shade the area that represents the tax revenue or subsidy amount and the deadweight loss.

Added by David S.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Xiaomin Bian

10/11/2019

Step 1

The demand curve represents the willingness to pay for cigarettes, while the supply curve represents the willingness to sell cigarettes at different prices. Show more…

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Need help determing if it should be a tax or subsidy, and how much that tax or subsidy should be. Quantity (packs Willingness to Willingness to pay (Oo) sell (Qs) 400 0 $16 300 $4 $12 200 $8 $8 100 $12 $4 $16 o a. (4 points) Graph and label the supply and demand curves for the cigarette market. Label the equillibrium price and quantity Areaof=b(h P Are of Rect = (b) (h) >(Q) b. (3 points) Suppose the government finds that smoke from cigarettes causes medical issues with a cost to citizens of $8 per pack used. What sort of policy (tax or subsidy) should the government use, and how large should the tax/subsidy be?

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Transcript

00:01 So let's look at this question.

00:02 So what's the given growth of the market? the first question say, how much is a garment tax on cigarette? so to find out how much is a garment tax, we need to see how much is the upper shift of the demand, i'm sorry, of the supply curve.

00:19 So the amount of vertical shift of supply curve, you can see that is this amount from five points.

00:26 You only need to find a specific point and find how much is a vertical chain.

00:30 So it is 5 .5 minus 4 .5 minus 4 .25.

00:38 So it should be 125.

00:44 So that's amount of text.

00:46 And part b say, what price do producer receive after paying the text? so the producer receive after paying the tax, you need to find the new supply curve is s2 and the demand curve is d.

01:01 So basically, the consumer need to pay 5 .5 for each unit, and the setter can only get 4 .25 for each unit.

01:13 So that should be 4 .25, and the difference goes to the garment.

01:18 Okay.

01:20 And for c is how much tax revenue the garment collect.

01:24 So the amount of tax revenue the garment can collect is basically calculated on how much is a tax for each unit, so that is 1 .25.

01:35 And how much can be sold in the market? so you can see that after the tax applied, the new equilibrium quantity is 18.

01:45 So it is 1 .25 times 18.

01:49 So that should be 22 .5 billion.

01:55 So that's the amount of tax received by the government.

02:00 And for priority, how would you graph with the friend of the tax work? from the buyer of the cigarette.

02:09 So instead of supply curve shift up by this 1 .25, the demand curve will shift down by 1 .25...

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