Cigarette smoking is widely recognized as the number one cause of cancer in the United States. One method the government can use to reduce cigarette smoking is to tax cigarettes. Read "The Impact of Proposed Cigarette Price Increases" by Frank J. Chaloupka at http://www.advocacy.org/publications/mtc/priceincreases.htm to answer the following questions about the effect of taxation on cigarette smoking.
Who is likely to be more affected by tax increases on cigarettes: all adults or young adults? Cite specific elasticity of demand estimates from the article to support your answer.
To have the greatest effect on reducing cancer from tobacco use, what other products should government tax?
What is the long-run elasticity of demand for cigarette smoking? What does this mean for the likely impact of taxes on long-run cigarette use?
The effect of the minimum wage on employers and employees depends on the elasticity of demand and supply for labor. Go to the Employment Policies Institute at http://www.epionline.org to read a recent analysis of minimum wage law and answer the following questions:
What was the percentage increase in the minimum wage?
What is the elasticity of demand for labor used in the study? Is demand elastic or inelastic?
What is the effect of the increase in the minimum wage on labor costs? Is this consistent with the elasticity of demand for labor? How would the effect on labor costs change if elasticity of demand for labor were greater than 1?
In the long run, what will happen to the change in labor costs compared to the change in labor costs in the short run? What accounts for the difference?
