Question

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?

Answer 1

Answer:

Response to negative incentive

Explanation:

Economic agents (decision-makers) tend to respond to incentives.

In this case when the was a negative incentive (tax) on smoking, people moved to surrounding states to purchase cigarettes.

They preferred the cost and inconvenience of going to surrounding states to buy cigarettes, than paying the tax imposed.