Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by
A)30%.
B)40%.
C)80%.
D)250%.

Question

Quizplus · Accepted Answer

The midpoint method formula for calculating the percentage change in quantity demanded is:

[(Q2 - Q1) / ((Q1 + Q2) / 2)] * 100

Where Q1 is the initial quantity demanded, and Q2 is the new quantity demanded after the price change.

Using the formula, we can calculate the percentage change in quantity demanded as:

[(0.4) * ((6 - 2) / ((2 + 6) / 2))] * 100 = 40%

This means that the government policy should have reduced smoking by 40%. Therefore, the correct answer is B.

Studies Indicate That the Price Elasticity of Demand for Cigarettes