According to a study by the U$.$S$.$ Centers for Disease Control and$$ Prevention, the

price elasticity of demand

LOADING...

for cigarettes is

negative $0\mathrm{.}25.0\mathrm{.}25.$

Americans purchase about $360$ billion cigarettes each year.

$$Sources: "Response to Increases in Cigarette Prices by$$ Race$/$Ethnicity$,$ Income, and Age

Groupslong dash$$United

$$States$,1976-1993,"$ Morbidity and Mortality Weekly

Report$,$

July$31,1998$; and Henry$$ Saffer, et$$ al$.,"$E$-$Cigarettes and Adult$$ Smoking," National Bureau of Economic Research Working Paper$24212,$ revised April $2018.$

Part $2$

a$.$ If the federal tax on cigarettes were increased enough to raise the price of cigarettes by

$4040$

$$percent$,$ the quantity of cigarettes demanded would

$$

$$

decrease

increase

by

enter your response here

billion per year $($enter your numeric response rounded to the nearest whole$$ number$).$

Part $3$

b$.$ A recent study by Henry Saffer of City University of New York and colleagues estimated that the price elasticity of demand for electronic cigarettes$($e$-$cigarettes$)$ is

minus$1\mathrm{.}27.$

Why might the price elasticity of demand be higher for$$ e$-$cigarettes than for conventional$$ cigarettes?

Because$$ e$-$cigarettes have been

$$

$$

less

more

recently introduced to the market and are

$$

$$

less

more

likely to be$$ addictive, the demand for them is

$$

$$

more

less

price elastic.

Part $4$

Is a tax increase of the same percentage more likely to reduce smoking of conventional cigarettes or of$$ e$-$cigarettes? Briefly explain.

If$$ e$-$cigarettes have

$$

$$

more

less

elastic$$ demand, a tax that raises the price of$$ e$-$cigarettes will result in a larger decrease in the quantity of$$ e$-$cigarettes demanded compared to the effect of a similar tax on conventional cigarettes.