posted by Karen on .
Consider public policy aimed at smoking
a.) Studies indicate that the price elasticity of demand for cigarettes currently costs $2 and the government wants to reduce smoking by 20%, by how much should it increase the price?
b.) If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking 1 year from now or 5 years from now?
c.) Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?
a) you did not provide an elasticity
b) you did not provide a short run vs long-run elasticity.
c) take a shot, what do you think? Hint: are people with lots of money more likely or less likely to be sensitive to changes in cigarette prices.