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Studies indicate that the price elasticity of demand for cigarettes is about
0.4. If a pack of cigarettes currently costs $4 and the government wants to
reduce smoking by 20 per cent, by how much should it increase the price?
Show your calculations.
(b) If the local 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 find that teenagers have a higher price elasticity than do adults. Why might this be true?

  • economics -

    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

    P2-4
    _______ = 0.5

    (P2+4)/2


    How can I resolve this ecuation?

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