Many states have minimum price laws for cigarettes. Assume that the demand equation for cigarettes is Q^D = 4,000 - 300P, while the supply equation is Q^S = -1,000 + 200P, with quantity in thousands of packs. Assume that state governments replace the $12 price floors with a tax of $5 per pack, resulting in the same number of packs sold as under the price floor. The price floor would lead to a deadweight loss of $_____; the $5 tax would lead to a deadweight loss of $_____.

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The Answer of Many states have minimum price laws for cigarettes. Assume that the demand equation for cigarettes is Q^D = 4,000 - 300P, while the supply equation is Q^S = -1,000 + 200P, with quantity in thousands of packs. Assume that state governments replace the $12 price floors with a tax of $5 per pack, resulting in the same number of packs sold as under the price floor. The price floor would lead to a deadweight loss of $_____; the $5 tax would lead to a deadweight loss of $_____.

Many States Have Minimum Price Laws for Cigarettes