Question

Are cigarettes relatively demand elastic or demand inelastic? Explain using the determinants of price elasticity of demand. Does the burden of cigarette taxes fall more heavily on buyers or sellers? Explain. Do you think that higher cigarette taxes will deter more people from smoking?

Answer 1

Elasticity of demand will be relatively inelastic becuase consumers does not change their quantity demanded by large even if there is rise in price.

Elasticity of cigarette would be less than 1 which means %change in quantity demanded < %change in price.

The major determinant of elasticity of demand of cigarette less than 1 is that consumers are addicted to it and it have become necessary good for consumers. Burden of tax falls more on inelastic side of the market, thus consumers have to face the larger share of the tax. Yes, I believe higher tax will induce some people from smoking because it will raise expenses on daily goods and induce them to cut quantity consumed of it.

answered by: anonymous