Suppose the market demand for cigarettes is: D=10- P, and the supply of cigarettes is: S=- 2+P, where P is the price per pack of cigarettes. If the government imposes a cigarette tax of $1 per pack, the price paid by consumers is:
A)$5.
B)$6.
C)$6.5.
D)$1.

Question

Quizplus · Accepted Answer

To find the new price paid by consumers after the tax, we need to add the tax amount to the original price.

Before the tax, the equilibrium price (where supply equals demand) can be found by setting the two equations equal to each other:

10 - P = -2 + P

Solving for P, we get:

P = $6

So before the tax, the price of a pack of cigarettes is $6.

After the tax, the price paid by consumers is:

$6 + $1 = $7

Therefore, the correct answer is choice C ($6.5 is not an option).

Suppose the Market Demand for Cigarettes Is: D=10- P, and the Supply