Use the expression for excess burden EBx= (.5pxxtx2 )/(1/ +1/) (where is the absolute value of
Question:
a. The excise tax is $0.20/pack.
b. The compensated elasticity of demand for cigarettes is η = 0.5.
c. The elasticity of supply is ε = 0.75.
d. In the absence of the tax, the equilibrium price of cigarettes is $1/pack and the equilibrium quantity is 500 million packs.
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