Figure 10.18 below shows the supply and demand curves for cigarettes. The equilibrium price in the market is $2 per pack if the government does not intervene, and the quantity exchanged in the market is 1,000 million packs. Suppose the government has decided to discourage smoking and is considering two possible policies that would reduce the quantity sold to 600 million packs. The two policies are (i) a tax on cigarettes and (ii) a law setting a minimum price for cigarettes. Analyze each of the policies, using the graph and filling in the table on the next page.

a) What is the size of the tax per unit that would achieve the government's target of 600 million packs sold in the market? What minimum price would achieve the target? Explain.
b) Using areas in the graph, answer the following.

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$3.00 2.00 KiM 1.00 0.60 600 1000 1200 Quantity (millions of packs) Tax Minimum Price What price per pack would consumers pay? What price per pack would producers receive? What area represents consumer surplus? What area represents the largest producer surplus possible under the policy? What area represents the smallest producer surplus possible under the policy? What area represents government receipts? What area represents smallest deadweight loss possible under the policy?