Article Summary
Among a package of anti-smoking bills designed to lower California's health care costs by reducing the use of tobacco products is a bill sponsored by Dr. Richard Pan that would increase the tax on a pack of cigarettes by $2. California currently has a tobacco tax of 87-cents-per-pack, making California's tax 33rd in the nation and well below the New York state tax of $4.35 a pack. The state taxes are in addition to a $1.01 federal tax on cigarettes. The bill stipulates that the revenue collected must be used to increase the number of physicians in California as well as support existing health care programs managed by the state. A Field Poll taken one day following the announcement of the bill found that two-thirds of California voters support the increase in the cigarette tax.
Source: Tracy Seipel and Jessica Calefati, "Cigarette tax: California voters overwhelmingly back $2-a-pack increase," San Jose Mercury News, August 27, 2015.
-Refer to the Article Summary above.The additional tax of $2 per pack of cigarettes being proposed by Senator Pan would have which of the following effects on the market for cigarettes in California?

Question

Quizplus · Accepted Answer

The increase in tax will lead to a higher price for cigarettes, which will decrease the quantity demanded, resulting in a reduction in consumer surplus and producer surplus. Additionally, there may be a decrease in market efficiency due to increased black market activity and smuggling. Therefore, the increase in tax will result in an increase in deadweight loss.

Article Summary Among a Package of Anti-Smoking Bills Designed to Lower California's