Taxes on cigarettes sold in Cook County are going up by one dollar a pack.
Cook County Board President Toni Preckwinkle says the tax, which takes effect Friday, is expected to generate more than $25 million annually for the Cook County Health and Hospitals System.
She says higher taxes also will help lower smoking rates, including by discouraging people from starting.
via www.stltoday.com
Is Chicago is testing the limits of the elasticity of demand for cigarettes? In general, the demand for cigarettes is price inelastic--that is, as prices go up the quantity demanded falss, but by proportionately less than the price increase. This means is that price increases lead to increases in total revenue (revenue to the sellers plus government revenue). But a general principle of most demand curves is that demand for a good becomes more price elastic the higher the price. That is, up to a point consumers are price insensitive, but as the price rises they become more and more sensitive to additional proportionate price increases. Eventually, the price reaches a 'tipping point' and total revenues start to fall. The question for policy makers is, where is the tipping point? Oh, and really what is the goal of raising cigarette prices? If you say it is to raise revenues and to decrease consumption, you're being at least slightly dishonest on at least one of those goals.
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