Question

Suppose the US government decides vaping is worse for your health than smoking cigarettes. Working together, the US Congress and the President decide to impose a significant increase in taxes and regulation on the vaping industry. Assume consumers consider vaping and cigarettes as "substitute goods." Which of the following statements is most likely to occur?

Group of answer choices

a.Supply of vaping products will decrease and demand for cigarettes will decrease

b.Supply of vaping products will increase and demand for cigarettes will decrease

c.Supply of vaping products will decrease and demand for cigarettes will remain constant

d.Supply of vaping products will decrease and demand for cigarettes will increase

Answer 1

Substitute goods are those goods which can be used in place of each other, therefore, the supply of vaping products will decrease due to the increase in taxes and producers will supply less vaping products as it will no longer be profitable to supply vaping, and at the same time the demand for cigarettes will increase as cigarette can be used in place of vaping products, therefore, the right answer is option D, that is, supply of vaping products will decrease and demand for cigarettes will increase.