a) Gary is a heavy smoker who spends $400 per week on cigarettes. The government decides to levy a 20 percent tax on all cigarettes. The burden of this tax will be completely borne by consumers. After the tax is levied, Gary?s expenditure on cigarettes increases to $432 per week. If each pack of cigarettes sells for $20, calculate Gary?s price elasticity of demand for cigarettes and comment on the elasticity of demand for addictive goods.
b) If the demand for a good has an absolute price elasticity greater than one, what will happen to the total expenditure on the good if its price increases?
c) If the demand for a good has an absolute price elasticity equal to one, what will happen to the total expenditure on the good if its price increases?

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The Answer of a) Gary is a heavy smoker who spends $400 per week on cigarettes. The government decides to levy a 20 percent tax on all cigarettes. The burden of this tax will be completely borne by consumers. After the tax is levied, Gary?s expenditure on cigarettes increases to $432 per week. If each pack of cigarettes sells for $20, calculate Gary?s price elasticity of demand for cigarettes and comment on the elasticity of demand for addictive goods.
b) If the demand for a good has an absolute price elasticity greater than one, what will happen to the total expenditure on the good if its price increases?
c) If the demand for a good has an absolute price elasticity equal to one, what will happen to the total expenditure on the good if its price increases?

A) Gary Is a Heavy Smoker Who Spends $400 Per