A country which does not tax cigarettes is considering the introduction of a $0.40 per pack tax. The economic advisors to the country estimate the supply and demand curves for cigarettes as: QD =
140,000-25,000P QS = 20,000 + 75,000P,
where Q = daily sales in packs of cigarettes, and P = price per pack. The country has hired you to provide the following information regarding the cigarette market and the proposed tax.
Calculate the deadweight loss from the tax. Could the tax be justified despite the deadweight loss? What tax revenue will be generated? (Answer should include graph).