1. The state excise tax on cigarettes in Missouri is $0.17 per pack (by far the lowest in the nation). In November 2016, citizens of Missouri voted on a ballot proposal to increase the excise tax on cigarettes by $0.60 per pack, to $0.77 cents per pack. As required by law, the state auditor issued a fiscal impact statement for this proposal; here is an excerpt from that report:
Use this information to estimate the increase in tax revenues from the proposed increase in the excise tax.
HINT #1: The auditor was sloppy in describing the elasticity for cigarettes; assume this means a price elasticity of -0.8.
HINT #2: You will need to assume that you are working with the long run supply curve (why?)
1. The state excise tax on cigarettes in Missouri is $0.17 per pack (by far the lowest in the nation). In November 2016, citizens of Missouri voted on a ballot proposal to increase the excise tax on cigarettes by $0.60 per pack, to $0.77 cents per pack. As required by law, the state auditor issued a fiscal impact statement for this proposal; here is an excerpt from that report:
Use this information to estimate the increase in tax revenues from the proposed increase in the excise tax.
HINT #1: The auditor was sloppy in describing the elasticity for cigarettes; assume this means a price elasticity of -0.8.
HINT #2: You will need to assume that you are working with the long run supply curve (why?)
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