Using the concept of elasticity, explain why increased tobacco taxes are more effective at reducing smoking...

Using the concept of elasticity, explain why increased tobacco taxes are more effective at reducing smoking by teenagers than older adults.

Expert Solution

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Price elasticity of demand= % change in the quantity demand/ % change in the price

When Ed>1, elastic demand

When Ed=1, Unit elastic demand

When Ed<1, inelastic demand

When taxes are increased on tobacco, then it will be effective for reduction of tobacco consumption by the teenagers more compare to older adults. This is because teenager consumers are new, so it price of tobacco increases, then according to law of demand they will consume less due to elastic demand for teenager.

In case of older adults, the demand for tobacco is inelastic, so with the increase in the taxes, the price will increase but these consumers decrease in quantity demand will be negligible because they have become habitual and habits cannot be changed in short-time.

Hence it is true according to the rule of elasticity of demand that increased tobacco taxes are more effective at reducing smoking by teenagers than older adults.

Rahul Sunny answered 2 years ago

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