The U.S. government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public aware of the dangers of cigarette smoking. At the same time, the Department of Agriculture maintains a price support program for tobacco farmers, which raises the price of tobacco above the equilibrium price.
a. How do these two programs affect cigarette consumption? Use a graph of the cigarette market in your answer.
b. What is the combined effect of these two programs on the price of cigarettes?
c. Cigarettes are also heavily taxed. What effect does this tax have on cigarette consumption?