The price elasticity of demand for cigarettes is approximately -0.3 and the income elasticity is approximately 0.5 according to studies undertaken by the Department of Agriculture.
1. Discuss what effect would a 10% increase in the price of cigarettes due to increase the cigarette taxes have on cigarette consumption and the consumer spending on cigarettes?
2. What impact would this have on cigarette sales if consumer incomes are expected to double over the next decade?