Friday

October 24, 2014

October 24, 2014

Posted by **GG** on Wednesday, December 5, 2007 at 1:25pm.

Studies indicate that the price elasticity of demand for cigarettes in about 0.4. If a pack of cirarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should the govenment increase the price?

Answer in suppose to be $3.33. When I try to calculate using formulate I can not get the answer.

Formula is:

P2-P1

_________

(P2+P1)/2

I got some of the calulation:

Percentage change in P=

.20 Quantity/.4 Price Elasticity of Demand = 0.5

P2-2

_______ = 0.5

(P2+2)/2

I have tried the calculation several ways and I can not arrive at the answer of $3.33.

- Microeconomics-Algebra Calculation -
**economyst**, Wednesday, December 5, 2007 at 4:45pmYou are very close. Check your arithmatic.

To avoid confusion, I will use Pn to mean P2 (price in period 2)

You have, as stated (Pn - 2)/((Pn + 2)/2) = 0.5 So, solve for Pn.

First multiply numerator and denominator by 2/2 (=1). You get:

(2Pn - 4) / (Pn + 2) = 0.5

Now multiply through by the denominator. You get:

2Pn - 4 = .5Pn + 1

Move the Pn's to the left of the =, the constants to the right. so:

1.5Pn = 5

Divide both sides by 1.5:

Pn = 3.3333

QED

**Answer this Question**

**Related Questions**

economics - 4. Consider public policy aimed at smoking. a. Studies indicate that...

Microeconomics - Consider public policy aimed at smoking a.) Studies indicate ...

economics - Studies indicate that the price elasticity of demand for cigarettes ...

Algebra - I am cramming for an examine. I can not locate one of my graded ...

MICROECONOMICS - In order to reduce cigarette consumption, govt initiates anti-...

Economics - Indicate how an understanding of demand and of elasticity of demand ...

managerial economics - The total operating revenues of a public transportation ...

Advanced Microeconomics College Level - Information on the price elasticity of ...

Managerial Economics - I need help on some homework questions for an MBA-level ...

microeconomics - Question 8 of 20 5.0/ 5.0 Points Suppose that the percentage ...