Suppose the market for cigarettes is characterized by the following information:
Qd = 70 – 5P [Demand] Qs = 3P – 10 [Supply]
[Note: P = price per unit; Qd = thousands of units demanded; Qs = thousands of units supplied]
Suppose the government imposes a sales tax of $2 per unit. Answer questions (i) through (v) below:
i) Calculate the magnitude of the consumer surplus and producer surplus in the pre-tax equilibrium.
ii) Calculate the tax revenue in the post-tax equilibrium.
iii) Calculate the change in consumer surplus due to the sales tax.
iv) Calculate the change in producer surplus due to the sales tax.
v) Calculate the Dead-Weight-Loss due to the sales tax.
B. Suppose the government imposes a price ceiling of $50 on a market characterized by the following information:
Qd = 700 - 2P Qs = 100 + 4P
[Note: P = price per unit; Qd = hundreds of units demanded; Qs = hundreds of units supplied]
Calculate the magnitude of deadweight loss from the price ceiling. Find a price floor that will result in the same magnitude of deadweight loss.