Recent trends in teen smoking are considered tobe positive by those who advocate for a reduction in teen smoking. The decline is attributed to government policy that restricts advertising that targeted children, for example the Jo Camel ads and billboard signs. Nevertheless the number of teens who smoke remain high, nearly 25% of teens report smoking by the end of high school. Given the personal and social costs the government continues to seek ways of reducing teen smoking. One possibility is to increasethe cigarette tax , but consulants for tobacco companies testify to congress that a tax on cigarettes aimed at curbing teen smoking will be useless. They argue that teen-smoking is influenced by peer-pressure, and so high taxes will have no effect on teen smoking behaviors.

a. What assumptions are the consultants for tobacco firms making about teen elasticity of demand for cigarettes? Explain

b. Assuming that the representatives of tobacco firms are correct, explain and show the effect of the excise tax on the cigarette market and why based on this assumption teens will bear the greatest burden of the tax.

c.Explain briefly the 4 determinants of a consumer's elasticity of demand and why each of these helps to determine the buyers responsive to price changes.

D. Explain and show the impact of the tax if the tobacco companies are wrong in their assumptions about teen elasticity-if they have overstated the elasticity responses.

E. Why is it in the tobacoo companies best interest to overstate teen elasticity of demand. explain