Short-long run price elasticitys of demand for cigarettes

Reference no: EM13684328

According to a study of US cigarette sales among 1955 and 1985, when the price of cigarettes was one percent higher, consumption would be 0.4 percent lower in the short run and 0.75 percent lowers in the long run (Becker et al., 1994).

1. Compute the short and long run price elasticity’s of the demand for cigarettes.

2. Is demand more or less elastic in the long run than in the short run? Describe your answer.

3. If the government were to impose a tax that raised the price of cigarettes by five percent, would total consumer expenditure on cigarettes (hint: which is total revenue for the firms) rise or fall in the short run? What about in the long run?

Reference no: EM13684328

Questions Cloud

Demand and supply equations : Presume that a market is described by the following demand and supply equations:

Presume the equilibrium quantity in the market for widgets : Presume the equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $740 per month in tax revenue. We can conclude that the equilibrium..

Two independent binomial random variables : Presume we have two independent binomial random variables that both have success probability in a single trial of p. The random variable X denotes the number of successes in three trials, whereas the random variable Y represents the number of success..

What is the difference between the problem of evil : What is the difference between the problem of evil

Short-long run price elasticitys of demand for cigarettes : According to a study of US cigarette sales among 1955 and 1985, when the price of cigarettes was one percent higher, consumption would be 0.4 percent lower in the short run and 0.75 percent lowers in the long run (Becker et al., 1994). Compute the sh..

What issue is the speaker using to take a position : What issue is the speaker using to take a position in the following situation? Readers may learn something about their own relationship to the earth by reading the work of conservationists, who spend a lifetime studying the ways that people and..

Does this legislation block free choice for consumers : Does this legislation block free choice for consumers? Who is responsible for the children's health with respect to fast food? Did the board of supervisors overstep its boundaries?

Ratio with present worth for the flood control project : A flood control project with a life of 18 years will need an investment of $200,000 and annual maintenance costs of $15,000. The project will provide no benefits for the first two years however will save $80,000 per year in flood damage starting in t..

What is the maximum investment-flood control dike : A state government is considering construction of a flood control dike having a life span of nine years. History indicates that a flood occurs every three years, on average, and causes $400,000 in damages on each occasion. If the state uses a MARR of..

User Account

All Pages