Consider the market for cigarettes: Demand: P = 36 - 2Q Supply: P = Q Sm...
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Consider the market for cigarettes:Demand: P = 36 - 2QSupply: P = QSmoking a cigarette imposes a $12/cigarette cost on others.There is an
of cigarettes in the private market. Without intervention, this market experiences a deadweight loss of $.The government can correct this externality by imposing a
equivalent to the
.Doing so will
consumption by cigarettes and generate $ in revenue for the government, % (round to 2 decimals) of which will be paid by consumers. If the government feared that imposing such a tax would anger smokers who are an important voting bloc, they could instead impose a price
of $ to achieve the same effect.
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