In 2014 the United States’ second-largest cigarette producer submitted a bid to acquire the country’s third-largest cigarette producer. If the merger took place, cigarette prices were expected to rise. How quantity demanded would respond to a price rise would depend on the price elasticity of demand.
(a)[2]
Identify two external costs created by smoking.
(b)[4]
Explain the difference between perfectly inelastic demand and inelastic demand.
(c)[6]
Analyse two ways, apart from imposing an indirect tax, in which a government could deter smoking.
(d)[8]
Discuss whether a merger between two large firms in the same industry is likely to raise the product’s price.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Pollution of the air” …