Suppose that the government imposes a tax on $12 per unit on cigarettes.
a) Draw a supply and demand diagram of the market for cigarettes without the tax. Show the price paid by consumers, the price received by producers and the quantity of cigarettes sold. [2 points]
b) Draw a supply and demand diagram for the cigarette market with the tax. Show the price paid by consumers, the price received by producers and the quantity of cigarettes sold. [4 points]
c) Compare the price paid by the consumer, the price paid by the producer and the quantity of cigarettes sold in parts a and b. [2 points]
d) What is the impact on welfare due to the imposition of the tax on cigarettes?

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