Final Answer:
If a $2 tax is added to the price of cigarettes, consumers would pay $7 per pack. Assuming the demand remains constant at 40 million packs per month, the total monthly expenditure on cigarettes would increase from $200 million to $280 million.
Step-by-step explanation:
The new price per pack is calculated by adding the tax to the original price: $5 + $2 = $7. Given the constant demand of 40 million packs per month, the total expenditure is found by multiplying the new price per pack by the number of packs: $7 * 40 million = $280 million. This represents the new monthly expenditure on cigarettes after the $2 tax is implemented.
Taxes on products like cigarettes not only impact consumer prices but also affect overall spending in the economy. In this case, the $2 tax per pack has increased the total expenditure on cigarettes, redirecting a portion of consumers' disposable income. Such changes in consumer behavior and spending patterns are important considerations for policymakers and stakeholders in both public health and economic sectors.
Understanding the economic implications of taxes on consumer goods provides insight into how changes in pricing structures can influence both individual spending habits and overall market dynamics. Policymakers may use this information to assess the effectiveness of taxation as a tool for achieving public health goals or generating revenue for specific government initiatives.