£5. Suppose that the price elasticity of demand for cigarettes is -0.25 and that consumers bear the full burden of the tax increase. How many packs of cigarettes will be consumed after the tax increase? a) 2.25 billion b) 2.375 billion

£5. Suppose that the price elasticity of demand for cigarettes is -0.25 and that consumers bear the full burden of the tax increase. How many packs of cigarettes will be consumed after the tax increase? a) 2.25 billion b) 2.375 billion

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter6: Elasticities

Section: Chapter Questions

Problem 16P

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Question

The government increases the tax on cigarettes by
£1 per pack. Before the increase, the tax rate on
cigarettes was £4 per pack, and 2.5 billion packs of
cigarettes were being consumed at a retail price of
£5. Suppose that the price elasticity of demand for
cigarettes is -0.25 and that consumers bear the full
burden of the tax increase. How many packs of
cigarettes will be consumed after the tax increase?
a) 2.25 billion
b) 2.375 billion
c) 2.5 billion
d) 3.125 billion

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