Question

Answer the following true/false questions by stating if the statement is true or false and by providing an explanation for the answer you gave. Your explanation should be detailed enough so that it establishes not only is your answer correct but that the opposite answer would be incorrect. All points for the true/false questions will be given for the explanation.

A. Lowering the legal age to purchase products would increase the supply of cigarettes. (T or F)

B. Increasing the price of cigarettes would decrease the quantity demanded. (T or F)

C. If a new excise tax of fifty cents is levied on suppliers of packs of cigarettes, consumers will end up paying fifty cents more per pack. (Assume an upward sloping supply curve and a downward sloping demand curve. T or F)

Refer to the table below to answer the following questions.

Price $	Quantity Demanded Packs	Quantity Supplied Packs
1	80	5
5	60	60
10	40	100
15	18	170
20	0	350

D. A surplus of 60 packs would exist at a price of $10.00. (T or F)

E. A price ceiling of $15.00 would cause a shortage of cigarettes. (T or F)

Answer 1

Answer   

A - False, Lowering the legal age would increase the demand of cigrates

B. True ---As per Law of Demand , quantity demanded is inversly related to the price. thus increaseing the price of cigrates would decrese the quantity demanded.

C - True - Excise tax is an indirect tax that consumer will bear because it will result increase in price of product. Thus If a new excise tax of fifty cents is levied on suppliers of packs of cigarettes, consumers will end up paying fifty cents more per pack.

D. True At a price of $ 10, the quantity supplied is 100 units and quantity demanded is 40. Thus there is a surplus of 100 - 40 = 60 units.

E False - Price ceililing of $ 15 would result in excess supply and not shortage