Explain the effects of animposition of a tax in the market

Reference no: EM131982509

Assignment: Principles of Economics for Accountants

Article: "Tobacco tax hikes are great, so long as you're not a poor smoker" By Katie Hirono and Katherine Smith.

Access the article at the URL given above and read it carefully. Based on your reading, answer the questions in the spaces below. Use full sentences and show all necessary working. Other references are not necessary but, if you do use any (for example,online economics glossaries) please list at least the URL of your source. Marks are shown and total.

(1) Can the market for cigarettes be considered a perfectly competitive market? Explain your answer, referring to at least three characteristics of this type of market structure.

(2) The article claims that "tobacco tax increases ...may discourage smoking". Use the simple demand and supply diagram to illustrate and explain the effects of animposition of a tax in the market for cigarettes, identifying the changes in consumer surplus, producer surplus and tax revenue.

(3) "Low-income earners tend to find it harder to quit than higher-income earners.". Explain in your own words what this means in terms of concept of elasticity and use the diagrams below to compare the effects of an imposition of a tax on equilibrium price and quantity when demand is

Reference no: EM131982509

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