The current federal cigarette tax is $10 per pack. The American Lung Association supports increasing the federal cigarette tax and making federal tax rates on other tobacco products equal to the cigarette tax.2

1. Tax per pack was paid by the buyers when purchasing cigarette, but would be paid to the government by the sellers. Using your knowledge about price elasticity of demand, and your assumption about the price elasticity of cigarrete, explain when tax per pack on cigarrete was increasing, would the government collect more or less tax revenue? 

2. Please show the above tax per pack (t, in USD) in a smoker’s demand equation (1 point). Assumed that the demand equation is Qd = a – bP.

Answer rating: 100% (QA)

1 Government collect less tax revenue because the demand ... View the full answer