Cigarettes are highly addictive and therefore have a very low elasticity of demand.A $2.00 increase in the national sales tax on cigarettes would likely cause the price paid by buyers of cigarettes to
A) increase by more than $1.00 but less than $2.00.
B) increase by $2.00.
C) increase by more than $2.00.
D) increase by less than $1.00.
E) remain unchanged.

Question

Quizplus · Accepted Answer

Cigarettes have a low elasticity of demand, meaning that a change in price will not significantly affect the quantity demanded. Therefore, the price increase from a $2.00 increase in the national sales tax will likely be passed on to the buyers, but not at the full amount. The price paid by buyers of cigarettes may increase by more than $1.00 but less than $2.00.

Cigarettes Are Highly Addictive and Therefore Have a Very Low