the graph above describes the market for cigarettes. the government of laos plans to impose a unit tax in…

the graph above describes the market for cigarettes. the government of laos plans to impose a unit tax in this market. how much of the (per unit) tax will be paid by the sellers of cigarettes? $3 $2 $5 $8

the graph above describes the market for cigarettes. the government of laos plans to impose a unit tax in this market. how much of the (per unit) tax will be paid by the sellers of cigarettes? $3 $2 $5 $8

Answer

Explanation:

Step1: Identify pre - tax and post - tax prices for sellers

Pre - tax, the supply curve intersects the equilibrium quantity at a price. Post - tax, the new supply curve (with tax) intersects the equilibrium quantity at a different price. The vertical distance between the two supply - curve intersections at the equilibrium quantity gives the tax burden on sellers. Let the pre - tax price received by sellers be $P_{s1}$ and the post - tax price received by sellers be $P_{s2}$. From the graph, assume the equilibrium quantity after tax is $Q$. The pre - tax price at this quantity on the original supply curve is $P_{s1}=$ 5$ and the post - tax price at this quantity on the new supply curve (with tax) is $P_{s2}=$ 2$.

Step2: Calculate the tax burden on sellers

The tax burden on sellers is the difference between the pre - tax price they receive and the post - tax price they receive. Tax burden on sellers=$P_{s1}-P_{s2}$ $=5 - 2=$3$

Answer:

$3$