Suppose a public referendum is being held on whether or not tolevy a tax on cigarettes. Currently, the supply of cigarettes isgiven by Qs = -40 + 6P. You estimate the demand for cigarettes tobe Qd = 140 - 3P.
You are asked to evaluate the likely effects of a tax oncigarettes equal to $1.50 per pack of cigarettes. Specifically, youare to file a report which predicts by how much this will reducethe amount of cigarettes sold. You are also asked to estimate theproportion of the tax that will be paid by the cigarette companies(sellers), and the proportion of the tax that will be paid by thesmokers (consumers) of cigarettes.
To do this, you will first need to calculate the current priceand quantity of cigarettes sold.
a) (4 points) What is the equilibrium price and quantity ofcigarettes?
P* = __________________________
Q* = __________________________
Next you know from your economics class that you will need toknow the price elasticity of demand and the price elasticity ofsupply of cigarettes
b) (2 points) What is the price elasticity of demand forcigarettes at the equilibrium price?
ε = ________________________
c)  η = ________________________
Using your answers to b) and c), you are now able to determinewhat proportion of the tax will be paid by buyers, and whatproportion of the tax will be paid by sellers.
d) What proportion of the tax will be paid by sellers?
Seller’s Proportion = ___________________________________
e) (3 points) What price will buyers pay after the tax isimposed?
Buyer’s Price = ___________________________________
f) (4 points) What quantity of cigarettes will be sold after thetax?
Qt = ____________________________________
g) (4 points) What is the deadweight loss from the tax?
DWL = ___________________________________
