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Suppose that the price elasticity of demand for a packet of cigarette is -0.8 and the price elasticity of supply is 1.3 at market equilibrium.
Suppose that the price elasticity of demand for a packet of cigarette is -0.8 and the price elasticity of supply is 1.3 at market equilibrium. As a result of an increase in per unit sales tax, the new equilibrium price rises by 10%. (a) What is the percentage change in quantity demanded of cigarette? (Show your steps.) (4 marks) (b) Explain with a relevant diagram, what will happen to total revenue in the cigarette industry? (5 marks) (c) What factors tend to make the demand curve for cigarettes more price elastic? Explain your answer. (6 marks)
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