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 price of cigarettes due to increased cigarette taxes have on cigarette consumption and consumer spending on the cigarettes?
2. What impact would this have on cigarette sales if consumer incomes are expected to double over the next decade?