Consider the following passage from the article. According to studies cited by the American Cancer Society, the most surefire way to get people to quit, especially youths, is to raise prices. A 10 percent increase, for example, is followed by a 6.5 percent reduction in the number of cigarette-smoking youths and a 2 percent reduction of the habit in adults. If these numbers are correct, O A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be greater than than the decrease in sales A tax which raises the price of cigarettes will increase money spent on cigarettes because demand for cigarettes among adults and youths are both ineleastic. O A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be less than than the decrease in sales

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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### Impact of Cigarette Price Increases on Smoking Rates

#### Consider the following passage from the article:

According to studies cited by the American Cancer Society, the most surefire way to get people to quit, especially youths, is to raise prices. A 10 percent increase, for example, is followed by a 6.5 percent reduction in the number of cigarette-smoking youths and a 2 percent reduction of the habit in adults.

#### If these numbers are correct,

**Select the most accurate statement:**

1. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be greater than the decrease in sales.
   
2. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because demand for cigarettes among adults and youths are both inelastic.
   
3. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be less than the decrease in sales.

#### Explanation:

The passage draws on research indicating that increasing cigarette prices can significantly reduce smoking rates, particularly among youths. For a 10 percent price increase, youth smoking rates drop by 6.5 percent, while adult smoking rates drop by 2 percent. The statements to be evaluated consider the economic principles of price elasticity of demand in the context of taxation and consumer behavior.

**Note:** No graphs or diagrams were provided in the image.
Transcribed Image Text:### Impact of Cigarette Price Increases on Smoking Rates #### Consider the following passage from the article: According to studies cited by the American Cancer Society, the most surefire way to get people to quit, especially youths, is to raise prices. A 10 percent increase, for example, is followed by a 6.5 percent reduction in the number of cigarette-smoking youths and a 2 percent reduction of the habit in adults. #### If these numbers are correct, **Select the most accurate statement:** 1. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be greater than the decrease in sales. 2. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because demand for cigarettes among adults and youths are both inelastic. 3. □ A tax which raises the price of cigarettes will increase money spent on cigarettes because the increase in price will be less than the decrease in sales. #### Explanation: The passage draws on research indicating that increasing cigarette prices can significantly reduce smoking rates, particularly among youths. For a 10 percent price increase, youth smoking rates drop by 6.5 percent, while adult smoking rates drop by 2 percent. The statements to be evaluated consider the economic principles of price elasticity of demand in the context of taxation and consumer behavior. **Note:** No graphs or diagrams were provided in the image.
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