What is promotional elasticity in economics?

Economics homework help elasticity problems?

• 2. "As income goes up, we find that you do not smoke cigarettes more. You don't tend to smoke more when you make more money." What does this sentence imply about the income elasticity of demand with regards to the group described in this sentence. Please give a brief explanation of your answer. I think that it is that the higher income consumers still demand just as much, even though their income is higher. 3. "There is a certain elasticity to [cigarette tax]. You double the tax, you don't double the revenue" What does this imply about the elasticity of demand with regards to price. Please give a brief explanation of your answer. I think the answer is enough consumers decide to quit smoking because of the increase in price, but some consumers keep smoking even though the price increase happened. 4. "We have seen that cigarettes are less likely to get in the hands of kids if the prices are higher"? What does this imply about the elasticity of demand with regards to price. Please give a brief explanation of your answer. I am stuck on the answer to this one. Thanks for your help!!

• Answer:

  LOL, going to yahoo answers for help on your homework..love it! Please take my answer and summarize it and you should get an A! You are correct about #2 As income goes up it shouldnt have an effect on the market of cigarettes (supply and demand). But since since this sentence shows that consumers are more likely to stop smoking when your income rises it shows a positive correlation between the two (OR THE TWO ITEMS ARE COMPLETELY DEPENDANT ON EACH OTHER). The graph would be a downward sloping diagonal line. like this \ The elasticity of the price would be dependant on the demand. If the market was in high demand of cigrettes the price would fluctuate as the demand increased, therefore alot of people are consuming the good. 3.) If cigarette taxes increase it is due to company/government policies not how much money is made by the company (well for all we know). The price of cigarettes is NOT sensitive to elasticity(very inelastic), therefore if you raise prices/taxes of cigarettes people are going to buy them no matter what. You are pretty much correct in your answer. The answer to this question would be(since it is flip flopped) that because of a price change(tax double), you are not doubling your revenue, IN TURN many consumers are stopping to smoke cigarettes and "substituting" a cheaper alternative. In general cigarettes are NOT sensetive to elacticity, just like video games and crack cocaine, people are going to buy them because they are "addicted" to them! 4.) This is called a black market. My Economics professor used the example of marijuna, although not appropriate for your class, this is just an example. If laws are enforced on any good, human nature is made to get around those rules and provide a necessaty to that good. Therefore it would be an extreme case of elasticity athough the market would be geared toward only the "legal" buyers.. Good Luck and hope you get an A+ !