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8. The price elasticities for cigarettes by habitual smokers (addicts) and potential smokers (young peOple) are —0.2 and -3 in equilibrium. The government is considering levying a
new 10% tax on cigarettes. (a) For each type of consumer, calculate the expected reduction in consumption from
the new tax. Explain why the responses of these two groups will differ, focusing on
the determinants of elasticities. (b) From which group will the government raise more tax revenue. For each group, will
tax revenue fall or rise relative to the original tax?

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