Question #2002695: Elasticity Theory


Question: According to a study of U.S. cigarette sales between 1955 and 1985, when the price of cigarettes was 1% higher, consumption would be 0.4% lower in the short run and 0.75% lower in the long run.

(A) Calculate the short run and long run own-price elasticities of the demand for cigarettes.

(B) Is demand more or less elastic in the long run than in the short run? Explain your answer.

(C) If the gov’t were to impose a tax that raised the price of cigarettes by 5%, would total consumer expenditure on cigarettes rise or fall in the short run? What about in the long run?

Solution: The solution consists of 220 words (1 page)
Deliverables: Word Document

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