The government plans to impose a tax on cigarettes to generate funds for healthcare benefits. Given that cigarette demand is currently price inelastic, which of the following statements is correct?

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This tax will generate minimal revenue in both the short run and long run because demand is price inelastic.Over time, the tax may yield less revenue than expected since cigarette demand is likely to become more sensitive to price changes.This approach is highly effective for raising revenue in both the immediate and distant future, as there are no alternatives to cigarettes.No tax revenue will be collected because cigarette sellers will reduce prices by the tax amount, leaving consumer prices unchanged.The tax will immediately eliminate cigarette consumption due to high price sensitivity.

Explanation

Although cigarette demand is currently price inelastic, meaning consumers are less responsive to price changes, this may not hold indefinitely. Over time, consumers may find substitutes or reduce consumption, making demand more elastic. Consequently, the tax might not generate as much revenue in the long term as initially expected.