MGEA02H3 Midterm: midterm solutions part 3

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Iris Au

Document Summary

The department of agriculture program increases the price of tobacco. Since tobacco is an input in cigarette production, this will lead to a decrease in the supply of cigarettes. This too will decrease cigarette consumption, though it drives the price up: are these two programs at odds with each other with respect to the goal of reducing cigarette consumption? (3 points) Both programs work towards the goal of reducing cigarette consumption. See combined graphs in part (iv): what is the combined effect of these two programs on the price of cigarettes? (4 points) The first program leads to a lower price of cigarettes, and the second program leads to a higher price. Whether the combined effect of the two programs increases or decreases the price of cigarettes depends on the relative sizes of the two price changes.