(c) Suppose that the government changes the policy and legal…

(c) Suppose that the government changes the policy and legalizes cigarette trade. Now cigarettes are traded in an open market and the supply goes back to Qs = 2P. However, for every unit of cigarette purchased, the buyer has to pay tax T to the government. Set T equal to 3 dollars. What is the equilibrium (pre-tax) price and quantity? What is the after-tax price paid by buyers?

Which of the following statements is TRUE about the effect o…

Which of the following statements is TRUE about the effect of a tax? I. Consumer surplus after the tax is area A + B. II. Producer surplus before the tax is D + E + F. III. Consumer surplus before the tax is A + C + E. IV. The size of the tax is $0.50, raising $170,000 in tax revenue. Q18 Picture.jpg