Thursday 22 May 2014
Inelastic demand
Recent research confirms that the demand for cigarettes is inelastic,
but it also indicates that smokers with incomes in the lower half of all
incomes respond to a given price increase by reducing their purchases
by amounts that are more than four times as large as the purchase
reductions made by smokers in the upper half of all incomes. How can the
income and substitution effects of a price change help explain this
finding?
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