The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:
A) decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall.
B) decreased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.
C) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise.
D) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.

Question

Quizplus · Accepted Answer

When the tax on cigarettes increased, consumers likely sought cheaper alternatives, such as rolling their own cigarettes using loose tobacco, which was not taxed. This would increase the demand for home cigarette rolling machines, leading to a rise in both the price and quantity of machines purchased.

The US Imposes Substantial Taxes on Cigarettes but Not on Loose