Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 12

Table 1 shows a short-run elasticity of demand for cigarettes. The same study suggested that the long-run elasticity of demand for cigarettes ranges from 1.0 to 2.5. Which is larger-short-run or long-run elasticity? Is this what we would expect? What adjustments might smokers be able to make in the long run that they cannot make in the short run that can explain the difference between short-run and long-run elasticities?
Table 1: Some Short-Run Price Elasticities of Deman d
Sources: "The price sensitivity of the demand for nongroup health insurance," Congressional Budget Office,August 2005; "Uncompensated own-price elasticity for broad consumption groups," U.S. Department of Agriculture,Economic Research Service,2005; Bwo-Nung Huang,Chi-wei Yang,and Ming-jeng Hwang (2004)"New evidence on demand for cigarettes: A panel data approach," The International Journal of Applied Economics 1(1): 81-97; C. Akbay and E. Jones (2006)"Demand elasticities and price-cost margin ratios for grocery products in different socioeconomic groups," Agricultural Economics -Czech 52(5): 225-235; Mark A. Bernstein and James Griffin (2005)Regional differences in the price-elasticity of demand for energy ,National Renewable Energy Laboratory/RAND Corporation; M. Espey (1996)"Explaining the variation in elasticity estimates of gasoline demand in the United States: A meta-analysis," The Energy Journal 17(3): 49-60; Sachin Gupta et al. (1996)"Do household scanner data provide representative inferences from brand choices? A comparison with store data," Journal of Marketing Research (Fall): 383ff; F. Gasmi,J. J. Laffont,and Q. Vuong (1992)"Econometric analysis of collusive behavior in a soft-drink market," Journal of Economics and Management Strategy (Summer): 277-311; J. M. Cigliano (1980)"Price and income elasticities for airline travel," Business Economics (September): 17-21; M. R. Baye,D. W. Jansen,and Jae-Woo Lee (1992)"Advertising effects in complete demand systems," Applied Economics (October): 1087-1096; Gary W. Brester and Michael K. Wohlgenant (1991)"Estimating interrelated demands for meats using new measures for ground and table cut beef," American Journal of Agricultural Economics (November): 1182-1194