Questions on taxation
Taxation
Question
The following figures relate to the demand and supply of cigarettes:
| Price £ | Q demanded (m) | Q supplied (m) |
| 7.00 | 600 | 1500 |
| 6.50 | 650 | 1400 |
| 6.00 | 700 | 1300 |
| 5.50 | 750 | 1200 |
| 5.00 | 800 | 1100 |
| 4.50 | 850 | 1000 |
| 4.00 | 900 | 900 |
| 3.50 | 950 | 800 |
| 3.00 | 1000 | 700 |
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Plot the demand and supply curves and show equilibrium price and quantity.
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The government decides to impose a tax on cigarettes of £2.00 per pack. Plot a new supply curve, and show the effect of this tax on:
The price of cigarettes and, the amount of cigarettes consumed.
From your graph estimate the incidence (burden) of tax on the consumer and producer.
