According to a study of US cigarette sales among 1955 and 1985, when the price of cigarettes was 1% higher, consumption would be 0.4% lower in the short run and 0.75% lowers in the long run (Becker et al., 1994).
1. Determine the short and long run price elasticity of the demand for cigarettes.
2. Explain; is demand more or less elastic in the long run than in the short run?
3. Would total consumer expenditure on cigarettes rise or fall in the short run if the government were to impose a tax that raised the price of cigarettes by 5 percent What about in the long run?