A)Gary Is a Heavy Smoker Who Spends $400 Per Week

Essay

a)Gary is a heavy smoker who spends $400 per week on cigarettes.The government decides to levy a 20 percent tax on all cigarettes.The burden of this tax will be completely borne by consumers.After the tax is levied,Gary's expenditure on cigarettes increases to $432 per week.If each pack of cigarettes sells for $20,calculate Gary's price elasticity of demand for cigarettes and comment on the elasticity of demand for addictive goods.
b)If the demand for a good has an absolute price elasticity greater than one,what will happen to the total expenditure on the good if its price increases?
c)If the demand for a good has an absolute price elasticity equal to one,what will happen to the total expenditure on the good if its price increases?