Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
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Chapter 5, Problem 10PA

Subpart (a):

To determine

Percentage change in price.

Subpart (b):

To determine

Impact of the policy change on the consumption.

Subpart (c):

To determine

Impact of the policy change on the consumption.

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Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? b. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now? c. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?
Consider public policy aimed at smoking. a.Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, how much should it increase the price? If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now? Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?
Is elasticity important in the analysis of the market? Why?
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