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PRICE, CROSS, AND INCOME ELASTICITIESHOW DO THEY RELATE TO ALCOHOL AND CIGARETTES? Published papers in the The NBER (National Bureau of Economic Research)suggest that: Taxation

PRICE, CROSS, AND INCOME ELASTICITIESHOW DO THEY RELATE TO ALCOHOL AND CIGARETTES?

Published papers in the The NBER (National Bureau of Economic Research)suggest that:

Taxation of cigarettes and alcohol raise revenue and reduce consumption of goods with negative external effects.The results suggest that higher alcohol prices decrease both alcohol and smoking suggesting complementary consumption.The research however also indicates that higher cigarette prices tend to decrease smoking participation but increase drinking.

Please discuss the following questions:

  1. Do college students have perfectly inelastic demands for cigarettes and alcohol?
  2. Does alcohol consumption increase during grim economic times (like the present)?
  3. Please speculate on the effect of cigarette taxes on the consumption of alcohol.

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