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Economic Analysis on Imposition of Tax on Cigarette

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Added on  2019-11-26

Economic Analysis on Imposition of Tax on Cigarette

   Added on 2019-11-26

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Running head: ECONOMIC ANALYSISEconomic AnalysisName of the StudentName of the UniversityAuthor note
Economic Analysis on Imposition of Tax on Cigarette_1
1ECONOMIC ANALYSIS Table of ContentsExercise 1.........................................................................................................................................2Exercise 2.........................................................................................................................................5Bibliography....................................................................................................................................6
Economic Analysis on Imposition of Tax on Cigarette_2
2ECONOMIC ANALYSIS Exercise 1a)The imposition of tax on cigarette will reduce the demand for cigarette more than itsprice for teenagers. Hence, revenue will not increase much. For young adult and adultdemand is inelastic. Therefore, for these groups demand reduces less than the price andlead to a significant increase in government revenue.b)The young adults tend to smoke less regularly than old adults do. Hence, adults have lesselasticity. The dependency on tobacco is least for the teenagers making demand highlyelastic.c)Low-income groups generally have high-income constraints. All of their income ismostly absorbed in meeting demand for necessary goods and left a few margin of incometo spend on tobacco. This makes tobacco demand highly price sensitive.d)If the demand for low-income groups becomes inelastic then people belonging to thesegroups are unable to cut their consumption much with price increase for tax imposition.This can lead to shortage of funds for other necessary good in budget.
Economic Analysis on Imposition of Tax on Cigarette_3

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