Question

What is likely to happen to cigarette market Price and the Quantity demanded (Qd) if the tax bill is enacted? Show this graphically.

Answer 1

Answer on Question #80258 - Economics / Microeconomics

From the graph below, it is evident that demand will remain unresponsive to price as there is quite a steep curve. There is a slight change in price and consumers will bear most of the tax burden. The supply would decrease due to increase in production costs. The government will record an increase in revenue due to higher sales.