The BBC reports a large increase in the tax on cigarettes in the USA
http://news.bbc.co.uk/1/hi/world/americas/7976225.stm
a) Using a diagram, explain the likely effect on sales of cigarettes in the USA
b) The article states
"The cigarette companies have not been standing idly by. They raised prices on cigarettes a few weeks ago to start making up for the money they expect to lose in sales."
What does this statement tell you about the price elasticity of demand for cigarettes?
c) What is the market failure associated with cigarette consumption?
d) How likely is the tax to reduce the market failure associated with cigarette consumption?
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