Question

14. The United States Tobacco Settlement between the major tobacco companies and 46 states caused the price of cigarettes to jump 21% (45 cents per pack). Levy and Meara (2006) found only a 2.65% drop in prenatal smoking 15 months later. What is the elasticity of demand for this group? A. The elasticity of demand is -0.116 B. The elasticity of demand is -0.126 C. The elasticity of demand is -0.136 D. The elasticity of demand is -0.146

Answer 1

Answer:

B. The elasticity of demand is -0.126

Explanation:

% Change in Quality demand = -2.65% (negative because of drop)

% Change in price = 21%

Elasticity of demand is given by

$\text{Elasticity of demand}=\dfrac{\text{\% Change in Quality demand}}{\text{\% Change in price}}\\\Rightarrow \text{Elasticity of demand}=\dfrac{-2.65}{21}\\\Rightarrow \text{Elasticity of demand}=-0.12619$

The Elasticity of demand is -0.12619