Refer to Figure 4-21. The figure above represents demand and ...

[futuristic]

Refer to Figure 4-21. The figure above represents demand and supply in the market for cigarettes. Use the diagram to answer the following questions.
 
  a. How much is the government tax on each pack of cigarettes?
  b. What portion of the unit tax is paid by consumers?
  c. What portion of the unit tax is paid by producers?
  d. What is the quantity sold after the imposition of the tax?
  e. What is the after-tax revenue per pack received by producers?
  f. What is the total tax revenue collected by the government?
  g. What is the value of the excess burden of the tax?
  h. Is this cigarette tax efficient?

Question 2

Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?
 
  A) an increase in supply and an increase in demand greater than the increase in supply
  B) an increase in demand and an increase in supply
  C) a decrease in demand and an increase in supply
  D) an increase in supply

[macagnavarro]

Answer to Question 1

a. 1.25
b. Consumer burden = 1.00
c. Producer burden = 0.25
d. Quantity traded = 18 billion
e. Net Price to seller = 1.25
f. Tax Revenue = 22.5 billion (1.25  18 billion)
g. Excess burden (deadweight loss) = 1.25 billion (1/2  1.25  2 billion)
h. Yes, a tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.

Answer to Question 2

A