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6.According to studies undertaken by the Department of Agriculture, the price elasticity of demand for cigarettes is approximately -0.3 and the income elasticity is approximately 0.5.

a. What effect would a 10% increase in the price of cigarettes due to increased cigarette taxes have on cigarette consumption and consumer spending on cigarettes?

b. If consumer incomes are expected to double over the next decade, what impact would this have on cigarette sales?

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Raushan Raj
Raushan RajLv8
28 Sep 2019

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Related questions

According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between  0.3 and  0.4 and the income elasticity is about + 0.5.

Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms).

Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?

According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between 0.3 and 0.4 and the income elasticity is about +0.5. Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms). Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?

Different economic studies estimate the price elasticity of demand for certain goods, some of

which are reported on page 176 of the Hubbard/O’Brien textbook. The following table presents

select elasticity of demand estimates from those reported:

Product Estimated Elasticity

Barnes & Noble

books- 4.00

Coca-Cola- 1.22

Cigarettes- 0.25

Beer- 0.23

Gasoline- 0.06

research tax rates imposed on cigarettes forthe state in which you reside and two surrounding states. Discuss the changes in tax rates on cigarettes in those states over the last few years. Predict the implication of this tax rate change on tax revenue according to theory.

Research the effect of changes in cigarette taxes on tax revenue for a state. Does this change indicate cigarettes have an elastic or inelastic demand in that state?

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