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Posted by on Wednesday, September 1, 2010 at 6:56am.

4. 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 1 year from now or 5 years from now?
c. Studies also find out that teenagers have a higher price elasticity that do adults. Why might this be true?

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