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 producers' tax burden is:
A)$1.75.
B)$1.
C)$0.5.
D)$0.

Question

Quizplus · Accepted Answer

The producers' tax burden is the difference between the price they receive after the tax and the price they would have received without the tax. In this case, the price they receive after the tax is $1 less than the price they would have received without the tax, so the producers' tax burden is $1.

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