Kansas Governor Sam Brownback proposes to raise tobacco taxes from 10 to 20 percent and liquor taxes from 8 to 16 percent. “I hope it doesn’t happen,” said Patti Hoffman of Patti’s Wine and Spirits. “I think it’s going to affect the consumer more than it will me.” State Rep. Russ Jennings is concerned that people in border communities will buy their cigarettes and alcohol in Missouri, where the tax is lower.

a. How will the Kansas market for cigarettes and alcohol respond to the tax increase?

b. How does shopping in Missouri impact the elasticity of demand in Kansas?

c. Why might the increase in the tax rates bring a decrease in the tax revenue?