Final answer:
The statement that equilibrium price will drop by the exact amount of the sales tax on cigarettes is False. The impact of a sales tax on prices depends on the elasticity of demand, which can vary, especially for inelastic goods like cigarettes where demand is less responsive to price changes.
Step-by-step explanation:
The assertion that the equilibrium price of cigarettes drops by exactly the amount of the sales tax, in this case, 50¢ per carton, is False. When a sales tax is imposed, it affects both the market supply and demand curves. What typically happens is the supply curve shifts upwards by the amount of the tax. This usually results in a higher price for consumers and a lower equilibrium quantity. The exact impact on the price depends on the elasticity of demand.
Considering the cigarette taxes, which are a type of sin tax, governments tax cigarettes to discourage their use and raise revenue. These taxes vary widely between states and over time. When taxes increase, the key economic question is how much will cigarette purchases decline, which largely depends on the elasticity of demand for cigarettes. If the demand is fairly inelastic, as is often the case with addictive goods like cigarettes, the quantity demanded may not decrease significantly, and the price paid by consumers can increase by nearly the full amount of the tax.