Question

According to a study by the U.S. Centers for Disease and Control and Prevention, the price elasticity of demand for cigarettes is -0.25. Americans purchase about 360 billion cigarettes each year. A. If the federal tax on cigarettes were increased enough to cause a 50 percent increase on the price of cigarettes, what would be the effect on the quantity of cigarettes demanded? B. Is raising the tax on cigarettes a more effective way to reduce smoking if the demand for cigarettes is elastic or if it is inelastic? Briefly explain.

          According to a study by the U.S. Centers for Disease and Control and Prevention, the price elasticity of demand for cigarettes is -0.25. Americans purchase about 360 billion cigarettes each year. A. If the federal tax on cigarettes were increased enough to cause a 50 percent increase on the price of cigarettes, what would be the effect on the quantity of cigarettes demanded? B. Is raising the tax on cigarettes a more effective way to reduce smoking if the demand for cigarettes is elastic or if it is inelastic? Briefly explain.

Added by Michelle K.

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