According to one study, the price elasticity of demand for cigarettes is 0.25. To decrease the consumption of cigarettes by 8 percent, a tax on cigarettes must raise the price of cigarettes by
A) 32 percent.
B) 25 percent.
C) 2 percent.
D) 3.1 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is: % change in quantity demanded = elasticity * % change in price. To achieve an 8% decrease in demand with an elasticity of 0.25, the price must increase by 32% (8% / 0.25 = 32%).

According to One Study, the Price Elasticity of Demand for Cigarettes