Studies indicate that the price elasticity of demand for cigarettes is about -0.4. A government policy...
Studies indicate that the price elasticity of demand for cigarettes is about -0.4. A government policy aimed at reducing smoking doubled the price of a pack of cigarettes. This government policy should have reduced smoking by
a)30%
b)40%
c)80%
d)25%
e)20%
Homework Answers
Answer
The price is doubled means the price increased by 100%
the elasticity of demand =% change in quantity/%change in price
-0.4=%change in quantity/100
%chnage in quantity =-0.4*100=-40%=decrease by 40%
the quantity decreases by 40%
Option b
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