Question:

1. What are the likely consequences on the U.S. market for tobacco products of the events listed below?

a. Does the supply curve or the demand curve shift? In which direction?

b. State whether the equilibrium price and quantity increase, decrease or stay the same.

c. Show the changes using a standard demand/supply diagram.

i. The Food and Drug Administration classifies tobacco as an "addictive" substance.

ii. Congress votes to raise the excise tax on all tobacco products

iii. Hurricane Rita dumps 15 inches of rain on North Carolina and destroys 80 percent of that state's tobacco crop

iv. Medical evidence that more than two cups of coffee a day (considered by many to be a substitute for smoking) greatly increases the risk of stomach cancer.