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Suppose that the demand for cigarettes is given by Qd = 2000-200P , where Qd is the number of packs demanded and P is the price pack. The supply of cigarettes is Qs=200P
a. Find the equilibrium price and equilibrium quantity of cigarettes, assuming the market is competitive.
b. In an effort to reduce cigarette smoking, the government levies a tax $2 per pack on buyers.
(I) Compute the quantity of cigarettes bought and sold after tax
(ii) Compute the price paid by consumers and price received by the sellers after tax.
(iii)How much revenue does the tax raise for the government?
(iv) What percent of the economic incidence falls on buyers and on seller?
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