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?
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?
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter5: Elastic And Its Application
Section: Chapter Questions
Problem 10PA
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Consider a public policy aimed at smoking.
- The government commissioned a research firm, Super Consulting, to conduct a study on the market
demand for cigarettes in Malaysia. The firm reported that theprice 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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