Consider the U.S. market for cigarettes. Suppose an econometric analysis estimates that the equation of the...
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Consider the U.S. market for cigarettes. Suppose an econometric analysis estimates that the equation of the market demand curve is P = 98-9Q (where P is measured in dollars per pack, and Q is measured in billions of packs per year), and at first the equation of the market supply curve is P = -2 + Q. a. Solve the supply and demand equations simultaneously to find the initial market equilibrium quantity (Q*) and price (P*). Show your work. b. Now suppose the government imposes a tax of $t on each pack of cigarettes produced. After the per-unit tax of $t is imposed, what is the new equation of the market supply curve? ● ● Solve the new supply equation and the demand equation simultaneously to find equations for the new market equilibrium quantity (Q*tax) and price (P*tax) as functions of t. Show your work. c. The government's revenue from the cigarette tax is equal to tQ. Using your equation for Q*tax from the last part, write down an equation for the government's tax revenue as a function of the size of the tax, t. ● ● ● If the government wants to earn $19.6 (billions) from the cigarette tax, how high should it set the tax per pack? Show your work. d. Suppose the government sets the cigarette tax at t = $1 per pack. Using your results above, calculate the new market equilibrium quantity and price after the tax (Q* tax and P*tax). Show your work. In this case, what percentage of the $1 tax is pa Show your work. on to buyers as a price increase? Consider the U.S. market for cigarettes. Suppose an econometric analysis estimates that the equation of the market demand curve is P = 98-9Q (where P is measured in dollars per pack, and Q is measured in billions of packs per year), and at first the equation of the market supply curve is P = -2 + Q. a. Solve the supply and demand equations simultaneously to find the initial market equilibrium quantity (Q*) and price (P*). Show your work. b. Now suppose the government imposes a tax of $t on each pack of cigarettes produced. After the per-unit tax of $t is imposed, what is the new equation of the market supply curve? ● ● Solve the new supply equation and the demand equation simultaneously to find equations for the new market equilibrium quantity (Q*tax) and price (P*tax) as functions of t. Show your work. c. The government's revenue from the cigarette tax is equal to tQ. Using your equation for Q*tax from the last part, write down an equation for the government's tax revenue as a function of the size of the tax, t. ● ● ● If the government wants to earn $19.6 (billions) from the cigarette tax, how high should it set the tax per pack? Show your work. d. Suppose the government sets the cigarette tax at t = $1 per pack. Using your results above, calculate the new market equilibrium quantity and price after the tax (Q* tax and P*tax). Show your work. In this case, what percentage of the $1 tax is pa Show your work. on to buyers as a price increase?
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A equilibrium at where demandsupply 989Q2Q 10010Q Q1001010 P2Q2108 after ... View the full answer
Related Book For
Systems analysis and design in a changing world
ISBN: 978-1423902287
5th edition
Authors: John W. Satzinger, Robert B. Jackson, Stephen D. Burd
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