A+ Solution

2. Suppose the state legislature proposed a $1.00 per-unit (pack) excise tax on cigarettes to be imposed legally or statutorily on cigarette sellers. Some news reports have suggested that the proposed tax would increase cigarette prices by $1.00 per pack and be paid entirely by smokers (cigarette buyers). Using a competitive supply/demand diagram of the cigarette market, carefully show and explain the circumstances under which these new reports would be true. 

3.  A subsidy is opposite of a tax. i.e. it is a payment from the government to people. Consider a proposal that pays a $10.00 per credit hour subsidy to UCO students. Suppose further that the elasticities of supply and demand are equal to one in the UCO educational service market. Use a competitive supply/demand diagram to explain the legal and actual incidence of this subsidy.