Assume that cigarettes sell for $7 per pack in New Jersey and $3 per pack in South Carolina, and New Jersey taxes cigarettes at $3.00 per pack and South Carolina taxes cigarettes at $0.10 per pack. How might cigarette sellers respond to the after-tax price differential between the two states?

Question

Quizplus · Accepted Answer

Cigarette sellers will try to maximize their profits by shifting the supply of cigarettes from New Jersey to South Carolina, where they can sell at a higher profit margin. Decreasing the supply of cigarettes to New Jersey may also create a sense of scarcity, leading to higher prices and therefore higher overall profits.

Assume That Cigarettes Sell for $7 Per Pack in New