In 2014, the second-largest cigarette producer in the US put forward an offer to buy the country’s third-largest cigarette producer. If the merger had gone ahead, cigarette prices were expected to rise. The size of the resulting change in quantity demanded would depend on the price elasticity of demand.
(a)[2]
Identify two external costs of smoking.
(b)[4]
Explain how perfectly inelastic demand is different from inelastic demand.
(c)[6]
Analyse two ways, other than imposing an indirect tax, that a government could use to reduce smoking.
(d)[8]
Discuss whether a merger between two large firms in the same industry will raise the price of the product.
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” …