In the article below Tim Harford (the Undercover Economist) looks at rationality in the purchase of cigarettes. He consider whether healthy and happy smokers are the same thing and the extent to which smokers would be happier if cigarettes were more expensive.
Why smokers are happier when cigarettes cost more MSN Slate (17/5/08)
Questions
| 1. | Identify the principal factors that determine the level of demand for cigarettes. |
| 2. | Given the factors identified in part (a), discuss the likely value of the price elasticity of demand for cigarettes. |
| 3. | Discuss the extent to which higher cigarette prices would make smokers happier. |