Table shows a short-run elasticity of demand for cigarettes. The same study suggested that the long-run elasticity of demand for cigarettes ranges from 1.0 to 2.5. Which is larger—short-run or long-run elasticity? Is this what we would expect? What adjustments might smokers be able to make in the long run that they cannot make in the short run that can explain this relationship between short-run and long-run elasticities?

Rent paid out ........................Opportunity cost of:

Interest on loans ..................Owner’s land and buildings (rent foregone)

Managers’ salaries ...............Owner’s money (investment income

Hourly workers’ wages ........Foregone)

Cost of raw materials ..........Owner’s time (labor income foregone)