The California cigarette market consists of the following supply and demand curves:
QD = 150 - 20p
QS = 40p
where Q is the number of packs of cigarettes per year (in millions!),and p is the price per pack.
a.Compute the market equilibrium price and quantity.
b.Calculate the price elasticities of each curve at the equilibrium price/quantity.
c.California imposes a tax on cigarettes of $0.90 per pack.Suppliers pay this tax to the government.Compute the after-tax price and quantity.How much do suppliers receive net of tax (per pack)?
d.Demand for cigarettes is generally more elastic over longer periods of time as consumers have more time to kick the habit.What does this imply about the tax incidence in the long run as compared to the short run?

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The Answer of The California cigarette market consists of the following supply and demand curves:
QD = 150 - 20p
QS = 40p
where Q is the number of packs of cigarettes per year (in millions!),and p is the price per pack.
a.Compute the market equilibrium price and quantity.
b.Calculate the price elasticities of each curve at the equilibrium price/quantity.
c.California imposes a tax on cigarettes of $0.90 per pack.Suppliers pay this tax to the government.Compute the after-tax price and quantity.How much do suppliers receive net of tax (per pack)?
d.Demand for cigarettes is generally more elastic over longer periods of time as consumers have more time to kick the habit.What does this imply about the tax incidence in the long run as compared to the short run?

The California Cigarette Market Consists of the Following Supply and Demand