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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%.

(E) 5%.

Respuesta :

wajahataraja

Answer:

B) 40%

Explanation:

We know that elasticity = percent change in quantity/percent change in price

From the midpoint formula, we know how to find the percentage change in

price as   [tex]\frac{(p2-p1)}{(p2+p1)/2}*100[/tex]     plugging in the values, the percent change in price comes out as 100%

using the elasticity formula we can now find the percent change in quantity

elasticity = percent change in q/percent change in p

0.4 = percent change in q/100

percent change in q = 40%