Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. According to the midpoint method, the government policy should have reduced smoking by
A)30 percent.
B)40 percent.
C)80 percent.
D)250 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the midpoint method as the percentage change in quantity demanded divided by the percentage change in price. The price change is from $2 to $6, which is a 100% increase. With an elasticity of 0.4, the reduction in smoking would be 0.4 times 100%, which is 40%.

Studies Indicate That the Price Elasticity of Demand for Cigarettes