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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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?
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