In Lungtopia, cigarettes sell for $5 per pack, and 5,000 packs are sold every week. In an effort to raise government revenue, the mayor of the city decides to impose a $2 per pack tax on cigarettes. 1.) Using the line drawing tool, show the approximate effect of the tax on the market supply curve for cigarettes. Properly label your line. 2.) Using the point drawing tool, indicate the new equilibrium price and quantity. Label your point E1. Carefully follow the instructions above, and only draw the required objects.

Solution and Explanation:

Equilibrium price = $ 5 per pack

Government imposed a tax of $ 2 per pack.

Therfore, the New price = $ 7 per pack.

please see the file that is attached.

Harmony implies a condition of no change. Clearly, at the balance cost, the two purchasers and merchants are in a condition of no change. In fact, at this value, the amount requested by the purchasers is equivalent to the amount provided by the dealers. Both market powers of interest and supply work in concordance at the balance cost. At the point when the cost of item expands, the dealers rush to the market with their items for a chance to win higher benefits. This makes a state of overabundance supply, at last prompting an excess of the specific item in its market.

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