Suppose there is a bill to increase the tax on cigarettes by $1 per pack coupled with an income tax cut of $500. suppose a person smokes an average of 500 packs of cigarettes per year--- and would thus face a tax increase of about $500 per year from the cigarette tax at the person's current level of consumption. The income tax measure would increase the person's after-tax income by $500. Would the combined measures likely to have any effect on the person's consumption of cigarettes? why or why not?
Added by Victor Manuel M.
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This could potentially discourage the person from consuming as many cigarettes, as they would now have to pay more for each pack. Secondly, the income tax cut would increase the person's disposable income. This could potentially encourage the person to consume Show more…
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Suppose there is a bill to increase the tax on cigarettes by $1 per pack, coupled with an income tax cut of $500. Suppose a person smokes an average of 500 packs of cigarettes per year and would thus face a tax increase of about $500 per year from the cigarette tax at the person's current level of consumption. The income tax measure would increase the person's after-tax income by $500. Would the combined measures be likely to have any effect on the person's consumption of cigarettes? Why or why not?
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