Jian-Fa Li

Date of Graduation


Document Type



Essay I presents a set of more refined estimates of demand for cigarettes in the U.S. It was found that the dynamic fixed estimator (DFE) outperforms the pool mean group estimator (PMG) and the mean group estimator (MG) in the U.S. cigarette market from 1961 to 1997. The short-run price elasticity is −0.122, and the long run price elasticity is −0.716. Additionally, there is ample room for cigarette firms to raise revenue to pay for the settlement costs as long as the demand for cigarettes remains in the inelastic range. In essay II, Based on our empirical estimates, the gap between the estimated elasticity values and the optimal value implies that there is still ample room to increase tax revenue from cigarette taxes. The elasticity of the price elasticity of demand serves as the measuring rod to fathom potential profitability of the cigarette industry. The enormous size of tobacco settlement cost may well be viable and may strengthen the collusive behavior among the cigarette companies. With current price elasticity stabilizing between −0.3 and −0.5, there is considerable room for tax hikes in the future to meet the shortfall in the budget of the federal and state governments. Essay III applies the elasticity theory developed by Greenhut, et al. (1974) to evaluate the world crude oil market. Right after the oil crisis (during 1973–1974), the demand curve facing OPEC changed from a relatively elastic demand (eL = −0.559 in 1973) to a relatively inelastic (eL = −0.194 in 1974) one. When the price went up, the price elasticities decreased further, the substantial revenue of OPEC emerged under the unstable case. Additionally, the profit of OPEC can be raised as OPEC increases the price of crude oil. The profit of OPEC is positively related to the crude oil price, while the profit is negatively related to price elasticities of crude oil demand facing OPEC. It shows that the OPEC can exercise its monopoly power to gain more profit if the price elasticity remains low.