question 2

The analysis accompanying the figure below investigates the impacts of an increase in cigarette prices. a) Use the figure to show both the short-run and the longrun impacts of a cigarette price decrease. (6 marks) b) If the elasticity of aggregate cigarette demand with respect to advertising were 0.15 in absolute value, by extrapolation what effect on cigarette consumption would be caused by a 10% reduction in advertising? (2 marks) c) What effect on cigarette consumption would be caused by A 50% reduction?; a 100% reduction? (4 marks) d) How and why does one's confidence in prediction change over this range of reductions? (4 marks) e) Suppose the price elasticity of cigarette demand is 0.4. If we increased the prices of cigarettes by 50 percent, what would we expect to happen to the quantity purchased? To total expenditures on cigarettes? (4 marks)