(Suppose the legislature is considering increasing the tax on cigarettes to 50 per pack. Assume the current price of a pack of cigarettes is $4.00 and that the state sells five million packs per year. The estimated short-run elasticity of demand for cigarettes at the current price and quantity is 0.4. The long-run elasticity of demand (one year or longer) is 0.75.)

• Calculate and explain how much additional revenue the government can expect to receive in the first year (assuming there is no growth in the number of people smoking). How much will smoking be reduced by?

• Calculate and explain how much additional revenue the government can expect to receive in the second year (assuming there is no growth in the number of people smoking). How much will smoking be reduced by?