Question

1. Tobacco, Inc., is concerned because Congress has proposed an excise tax of $1 on each pound of tobacco sold in the United States. That is, tobacco companies are responsible for paying the $1 tax to the government. They are lobbying against the tax through an advertising campaign that says the tax will raise the price of tobacco by $1. Use supply and demand graphs to argue whether their claim is likely to be correct or not.

2. Rappel Valley in Chile is renowned for its ability to produce high-quality wine at a fraction of the cost of many other vineyards around the world. Rappel Valley produces over 20 million bottles of wine annually, of which 5 million are exported to the United States. Strong La Niña weather patterns have caused unusually cold temperatures, devastating many of the wine producers in that region of Chile.

a. How will La Niña affect the price of Chilean wine?

b. Assuming La Niña does not impact the California wine-producing region, how will La Niña impact the market for Californian wines?

Answer 1