1. (10 points) The price elasticity of demand for bobble heads is -2; the price elasticity of supply is 3. How much will the price of bobble heads change with a unit tax of $1? What percentage of the economic burden of the tax is borne by producers or consumers, respectively? I am looking for a numerical answers. Briefly explain your reasoning.

2. (10 points) Federal Transportation Administration has introduced a new tax on train travel. There are two types of travelers by train, business travelers and leisure travelers. The former have a price elasticity of demand of -1.2; the latter have a price elasticity of demand of -3. Which type of traveler will bear the larger burden of the tax? Briefly explain your reasoning.

3. The market demand for cigarettes is given by the following equation: Q P = − 2000 100 .
The market supply of cigarettes is given by the following equation: Q P =− + 100 200 .
Quantity is defined as the number of packs, price is defined as price per pack.
a. (2 points) What is the market equilibrium price of cigarettes?
b. (2 points) What is the market equilibrium quantity of cigarettes?
c. (2 points) Graphically illustrate the supply curve, demand curve, and market equilibrium.
d. (2 points) What is the price of cigarettes that consumers pay?
e. (2 points) What is the price of cigarettes that producers receive?
f. In order to discourage smoking, now the government institutes a unit tax of $3 per pack that is levied on consumers.
i. (2 points) What is the after-tax market equilibrium price of cigarettes?
ii. (2 points) What is the after-tax market equilibrium quantity of cigarettes?
iii. (2 points) Graphically illustrate the supply curve, demand curve, and market equilibrium.
iv. (2 points) What is the price of cigarettes that consumers pay after the tax is imposed?
v. (2 points) What is the price of cigarettes that producers receive after the tax is imposed?
vi. (2 points) How much revenue does the tax generate for the government?
g. (8 points) Assume that the revenue from the cigarette tax is spent on activities that benefit neither the consumers nor the producers of cigarettes. What is the economic incidence of the tax? What fraction of the tax is borne by consumers? What fraction is borne by producers? Briefly explain your reasoning.

1. (10 points) The price elasticity of demand for bobble heads is -...