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Cigarette Makers Penalties

by / Published in Economics

U.S. cigarette makers face enormous punitive damage penalties after losing a series of class-action lawsuits that heaped penalties amounting to several hundred billion dollars on the tobacco industry. In spite of the huge penalties, The Wall Street Journal reported, “The damage (to cigarette makers) is generally under control.” What action do you suppose the cigarette companies took to avoid bankruptcy? Why did this action succeed? Fully explain the answer to these questions using elasticity, demand, supply, and market equilibrium.

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