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Calculate the tax revenue and excess burden

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Reference no: EM132473313

Consider a case where the initial price of a pack of cigarette is $1.50 per pack and the quantity sold and bought is 200,000 packs per day. Assuming an elasticity of demand of -0.85 and elasticity of supply of 2.5,

(a) Calculate the tax revenue and excess burden if the excise tax on each pack of cigarette is $1.50.

(b) Suppose the elasticity of demand is -0.45 and the elasticity of supply is 1.05, what is the incidence of the tax on (i) the consumers (ii) the producer

(c) What is the new tax revenue and excess burden?

Reference no: EM132473313

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