On the basis of historical data, an analyst has concluded, "The consumption of cigarettes is . . . [relatively] insensitive to changes in price. . . . In contrast, the demand for individual brands is highly elastic in its response to price. . . . In 1918, for example, Lucky Strike was sold for a short time at a higher retail price than Camel or Chesterfield and rapidly lost half its business."

Explain why the demand for a particular brand is more elastic than the demand for all cigarettes. If Lucky Strike raised its price by 1% in 1918, was the price elasticity of demand for its product greater than -2?

#2 Continued

Do you think that the demand curve for cigarettes is the same now as it was in 1918? If not describe the factors that have shifted the demand curve and whether each has shifted it to the left or right.