Figure 6-4
-If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $5.00 to $6.00 would reduce quantities demanded by about
A)7 percent.
B)40 percent.
C)42 percent.
D)220 percent.

Question

Figure 6-4 
-If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $5.00 to $6.00 would reduce quantities demanded by about
A)7 percent. 
B)40 percent. 
C)42 percent. 
D)220 percent.

Quizplus · Accepted Answer

The elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. Given an elasticity of 0.4 and a price increase from $5 to $6 (a 20% increase), the quantity demanded would decrease by 0.4 * 20% = 8%. However, since none of the options exactly match this calculation, the closest option is 7 percent (A).

Figure 6-4 -If the Elasticity of Demand for Cigarettes Is 0.4, Then