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Suppose the state of Wyoming passes a law that increases the tax on cigarettes
Suppose the state of Wyoming passes a law that increases the tax on cigarettes. As a result, smokers who live in Wyoming start purchasing their cigarettes in surrounding states. Which of the following principles does this best illustrate?
a) People respond to incentives,
b) Rational people think at the margin,
c) Trade can make everyone better off,
d) Markets are usually a good way to organize economic activity.
Expert Solution
Which of the following principles does this best illustrate? a) People respond to incentives.
Price is one incentive that will change consumer behavior. They may also take into account having to drive a bit further to purchase cigarettes across the state line, but that cost must outweigh the benefits because the consumers have changed their behavior.
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