Assume that the typical menthol-cigarette smoker has a mean, disposable weekly income of $700 per week. Assume this typical menthol cigarette smoker has a utility function given as U = c0.1A0.9 where C represents packs of cigarettes consumed each week, and A represents all other goods. Finally, assume that cigarettes sell for $10 per pack. a. Given the information provided above, how many packs of cigarettes does the typical, menthol-cigarette smoker consume in a week? b. Evaluate the effect on cigarette consumption of a tax of $2.50 per pack levied on all menthol cigarette sales (this would be over and above all existing taxes). By how much, if at all, would the typical smoker's cigarette consumption fall in response to this tax? How does that reduction compare to the 20 percent reduction in consumption predicted under the ban?

Assume that the typical menthol-cigarette smoker has a mean, disposable weekly income of $700 per week. Assume this typical menthol cigarette smoker has a utility function given as U = c0.1A0.9 where C represents packs of cigarettes consumed each week, and A represents all other goods. Finally, assume that cigarettes sell for $10 per pack. a. Given the information provided above, how many packs of cigarettes does the typical, menthol-cigarette smoker consume in a week? b. Evaluate the effect on cigarette consumption of a tax of $2.50 per pack levied on all menthol cigarette sales (this would be over and above all existing taxes). By how much, if at all, would the typical smoker's cigarette consumption fall in response to this tax? How does that reduction compare to the 20 percent reduction in consumption predicted under the ban?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.1P

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