The price elasticity of cigarettes has been estimated as -0.5.The government has decided that they want to decrease the amount that people in the United States smoke by 10%.It follows that they must institute measures that would raise the price of cigarettes by
A) 5%
B) 10%
C) 15%
D) 20%

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is: % change in quantity demanded = elasticity * % change in price. To achieve a 10% decrease in smoking, with an elasticity of -0.5, the price must increase by 20% (10% / -0.5 = 20%).

The Price Elasticity of Cigarettes Has Been Estimated as -0