The Centers for Disease Control and Prevention (CDC) estimates that cigarette smoking causes more than 480,000 deaths each year in the United States. Cigarette smoking also carries a significant...

The Centers for Disease Control and Prevention (CDC) estimates that cigarette smoking causes more than 480,000 deaths each year in the United States. Cigarette smoking also carries a significant financial burden with an estimated $170 billion of direct medical expenses and another $156 billion resulting from lost productivity from workers annually. If market demand and supply for cigarettes in the United States is as shown in the accompanying graph, consider the government’s options if it wants to reduce cigarettes consumption to 200 billion packs per year.

a. Taxes: What per-unit tax on cigarettes would accomplish their goal?

b. Price regulation: What price should the government set to achieve its goal using a price floor?

c. Quantity regulation: If the government simply sets a maximum quantity of 200 billion packs that can be sold, what price will consumers end up paying per pack?

d. Which policy do you think consumers will prefer? Which policy do you think cigarette sellers will prefer? Why?