Suppose the market demand for cigarettes is given in the following table.

price (per pack) Quantity of demanded (millions of packs per year)
$10 2
9 4
8 6
7 8
6 10
5 12
4 14
3 16
Suppose further that smoking creates external costs valued at $2.00 per pack. Graph the market demand curve, the social demand curve, and answer two questions about the market and socially optimal quantities.

Graph the social and market demand curves.

If cigarettes are priced at $7 a pack,

Instructions: Enter your responses as whole numbers.

a. What is the quantity demanded in the market?

___ million packs per year

b. What is the socially optimal quantity?

____ million packs per year

c. If the government were to intervene and tax cigarettes, how large of a tax is needed per pack to achieve this optimal outcome?

$ ____per pack