The price elasticity of demand for cigarettes

Reference no: EM13694542

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.

a. 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).

b. 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?

Reference no: EM13694542

Questions Cloud

How much will the firm produce : A monopoly firm faces a demand curve given by the following equation: P = $500 ? 10Q, where Q equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces no fixed cost.

Demand curve facing an individual firm and the reason : Carefully explain what will happen as we move from the short run to a long run equilibrium in a monopolistically competitive industry if firms are making a positive profit in the short run. Your explanation should clearly state what will happen to th..

Protections afforded to a debtor heavily in debt : One of the protections afforded to a debtor heavily in debt and facing numerous creditors who are ready to foreclose on personal and real property is

Countrys public debt as a percentage of real gdp in year : What price would I want to sell my 12 posters to my 12 friends if my first friend will buy it for $11 dollars, my second at $10 dollars, and so on until that 12th friend would get the poster for $0 dollars?

The price elasticity of demand for cigarettes : 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.

Describe the condition of the banking system : Assume that the following data describe the condition of the banking system:

What is the supply curve of an individual firm : Consider a competitive industry with a large number of firms, all of which have identical cost functions c(y)=y2+1 for y>0 and c(0)=0. Suppose that initially the demand curve for this industry is by D(p)=52-p.

Consulting engineering firm is considering two models : Which model should the consulting firm buy? A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $26,000, an operating cost of $2000, and a salvage value of $12,000 after 3 y..

How to setup a program to respond to events : Discussing how to setup a program to respond to events from any one of these sources - How do you create the necessary listener class? How do you associate the listener object with the event source?

User Account

All Pages