If studies suggest that the price elasticity of demand for cigarettes is 0.2 (in absolute terms), and the government wishes to increase cigarette consumption by 25%, how much of a price increase by taxation would be required to bring this about? (60 marks)

Is this policy to reduce smoking likely to have:

(a) a larger effect in the longer term than in the shorter term? (20 marks)

(b) a larger effect on younger smokers than older smokers? (20 marks)