5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the...

Extracted text: 5. The current equilibrium price per pack of cigarettes is $4. Every day 40 million packs of cigarettes are sold. In order to recover some of the health care costs associated with smoking, the government imposes a tax of $2 per pack. This will raise the price to $5 per pack and reduce the quantity demanded to 30 million packs at that price, while the quantity supplied at$3 per pack is now 30 million packs. a. Draw a supply and demand diagram of cigarettes before the tax. Label CS and PS b. On a new diagram, show the effect that the tax has by labeling the following i. New consumer surplus ii. New producer surplus iii. Government revenue from excise tax iv. Deadweight loss