According to one study, the price elasticity of demand for cigarettes is -0.20. To decrease the consumption of cigarettes by 5 percent, a tax on cigarettes must raise the price of cigarettes by

A. 10 percent. B. 25 percent. C. 50 percent. D. 100 percent. E. 1 percent

answers

watching

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

maria37863711Lv2

24 Sep 2023

Unlock all answers

Get 1 free homework help answer.

Get unlimited access

Already have an account? Log in

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Collen VonLv2

25 Jan 2019

Get unlimited access

Already have an account? Log in

Related questions

Analyze the following case study.

Two ways to reduce the quantity of smoking demanded Public policymakers often want to reduce the amount that people smoke because of smoking's adverse health effects. There are two ways that policy can attempt to achieve this goal. One way to reduce smoking is to shift the demand curve for cigarettes and other tobacco products. Public service announcements, mandatory health warnings on cigarette packets, and the prohibition of cigarette advertising are all policies aimed at reducing the number of cigarettes demanded at any given price. If successful, these policies shift the demand curve or cigarettes to the left. Alternatively, policymakers can try to raise the price of cigarettes. If the government taxes the manufacture of cigarettes, for example. cigarette companies pass much of this ta on to consumers in the form of higher prices. A higher price encourages smokers to reduce the number of cigarettes they smoke. In this case, the reduced amount of smoking does not represent a shift in the demand curve. Instead, it represents a movement along the same demand curve to a point with a higher price and lower quantity. How much does the amount of smoking respond to changes in the price of cigarettes? Economists have attempted to answer this question by studying what happens when the tax on cigarettes changes. They have found that a 10 percent increase in the price causes a 4 percent reduction in the quantity demanded. Teenagers are found to be especially sensitive to the price of cigarettes - a 10 percent increase in the price causes a 12 percent drop in teenage smoking. A related question is how the price of cigarettes affects the demand for illicit drugs, such as marijuana. Opponents of cigarette taxes often argue that tobacco and marijuana are substitutes, so that high cigarette prices encourage marijuana use. By contrast, many experts on substance abuse view tobacco as a 'gateway drug' leading the young to experiment with other harmful substances. Most studies of the data are consistent with this view - they find that high cigarette prices are associated with reduced use of marijuana. In other words, tobacco and marijuana appear to be complements rather than substitutes.

raspberrylouse941

According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between 0.3 and 0.4 and the income elasticity is about + 0.5.

Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms).

Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?

burgundyhamster652

According to studies undertaken by the US Department of Agriculture, the price elasticity of demand for cigarettes is between 0.3 and 0.4 and the income elasticity is about +0.5. Suppose Congress, influenced by studies linking cigarette smoking to cancer, plans to raise the excise tax on cigarettes so the price rises by 10%. Estimate the effect the price increase will have on cigarette consumption and consumer spending on cigarettes (in percentage terms). Suppose a major brokerage firm advised its clients to buy cigarette stocks under the assumption that, if consumer incomes rise by 50% as expected over the next decade, cigarette sales will double. What is your reaction to this investment advice?