If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about
A) 27 percent.
B) 40 percent.
C) 12 percent.
D) 95 percent.

Question

Quizplus · Accepted Answer

Elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the price increases by 30% (from $1.00 to $1.30), and with an elasticity of 0.4, the quantity demanded would decrease by 0.4 * 30% = 12%.

If the Elasticity of Demand for Cigarettes Is 0