The government commissioned a research firm, Super Consulting, to conduct a study on the market demand for cigarettes in Malaysia. The firm reported that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking after 1 year from now or 5 years from now? ExplainSuper Consulting also found that teenagers have higher price elasticity than adults. Why might this be true? ExplainOutline and discuss the appropriate economic policies that can be implemented to reduce smoking.

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Answered: price elasticity of demand

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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The government commissioned a research firm, Super Consulting, to conduct a study on the market demand for cigarettes in Malaysia. The firm reported that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?
If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking after 1 year from now or 5 years from now? Explain
Super Consulting also found that teenagers have higher price elasticity than adults. Why might this be true? Explain
Outline and discuss the appropriate economic policies that can be implemented to reduce smoking.

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