If the elasticity of demand for cigarettes by teenagers is 1.5, then to reduce teen smoking by 60 percent, tobacco companies would need to raise their prices by
A) 15%.
B) 40%.
C) 60%.
D) 90%.

Question

Quizplus · Accepted Answer

If the elasticity of demand for cigarettes by teenagers is 1.5, then a 1% increase in price would reduce the quantity demanded by 1.5%. To reduce teen smoking by 60%, the price would need to increase by (60%/1.5) = 40%. Therefore, the correct answer is B, a 40% price increase.

If the Elasticity of Demand for Cigarettes by Teenagers Is