The demand for cigarettes is given by: QD = 140,000

Question

The demand for cigarettes is given by: QD = 140,000 - 25,000P.
where Q is the quantity of cigarettes demanded (in packs)and P is the price of a pack of cigarettes. The supply of cigarettes is given by: Q = 20,000 + 75,000P where QS is the quantity of cigarettes supplied (in packs). Suppose that a tax of $0.40 per pack was imposed on cigarettes.
i)How much would consumers' surplus be reduced? How much would producers' surplus be reduced?
i)What is the deadweight loss associated with the tax? Explain using words and diagrams what is meant by the term "deadweight loss".

Quizplus · Accepted Answer

The Answer of The demand for cigarettes is given by: QD = 140,000 - 25,000P.
where Q is the quantity of cigarettes demanded (in packs)and P is the price of a pack of cigarettes. The supply of cigarettes is given by: Q = 20,000 + 75,000P where QS is the quantity of cigarettes supplied (in packs). Suppose that a tax of $0.40 per pack was imposed on cigarettes.
i)How much would consumers' surplus be reduced? How much would producers' surplus be reduced?
i)What is the deadweight loss associated with the tax? Explain using words and diagrams what is meant by the term "deadweight loss".