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| According to S. Sackrin of the U.S. Department of Agriculture, the price elasticity of demand for cigarettes is between – 0.3 and – 0.4, and the income elasticity of demand is about 0.5. a. Suppose the federal government, influenced by findings that link cigarettes and cancer, were to impose a tax on cigarettes that increased their price by 15%. What effect would this have on cigarette consumption? b. Suppose a brokerage house advised you to buy cigarette because if incomes were to rise by 50% in the next decade, cigarette sales would be bound to spurt enormously. What would be your reaction to this advice? |
