3) The U.S. administers two programs that affect the market for cigarettes.

Media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette smoking. At the same time, the Department of Agriculture maintains a price support program for tobacco farmers that raises the price of tobacco above the market equilibrium price. a. How do these two programs affect cigarette consumption? Use a graph of the cigarette market to support your answer. b. What is the combined effect of these two programs on the price of cigarettes? c. Cigarettes are also heavily taxed. What effect does this tax have on cigarette consumption?

A price support program is a price floor. a. The media campaign is going to decrease demand, so consumption falls. b. We cannot tell the effect on the price. From the information we know a decline in demand lowers the price, but the price floor increases price, so the net effect is indeterminate. c. The tax on cigarettes decreases consumption.
2) If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500? Explain. (Answer: If the government imposes a $500 tax on luxury cars, the price paid by consumers will rise less than $500, in general. The burden of any tax is shared by both producers and consumers the price paid by consumers rises and the price received by producers falls, with the difference between the two equal to the amount of the tax. The only exception would be if the supply curve were perfectly elastic, in which case consumers would bear the full burden of the tax and the price paid by consumers would rise by exactly $500.

1. Lovers of classical music persuade Congress to impose a price ceiling of $40 per concert ticket. As a result of this policy, do more or fewer people attend classical music concerts?

If the price ceiling of $40 per ticket is below the equilibrium price, then quantity demanded exceeds quantity supplied, so there will be a shortage of tickets. The policy decreases the number of people who attend classical music concerts, because the quantity supplied is lower because of the lower price. If the ceiling of $40 is below the equilibrium price, the quantity demanded would exceed the quantity supplied, i.e., a shortage would exist. The policy decreases the number of people who would attend classical music concerts, since the quantity supplied is lower because of the below-equilibrium ceiling price.

If a price ceiling is put into place at $40 the is going to decrease in price, therefore more people will want to attend the classical music concerts (quanity demanded increases) while the quantity supplied or the amount of seats will decrease. Then causing a shortage.