Welcome to Westonci.ca, your ultimate destination for finding answers to a wide range of questions from experts. Discover comprehensive answers to your questions from knowledgeable professionals on our user-friendly platform. Discover detailed answers to your questions from a wide network of experts on our comprehensive Q&A platform.

Suppose the price elasticity of demand for cigarettes is -0.8 and that the government can essentially set the price of cigarettes by altering the tax rate. If the government wishes to reduce the quantity of cigarettes demanded by 15 ​percent, how much must it raise the price of​ cigarettes? The​ government, to achieve its​ goal, must raise the price of cigarettes by nothing percent. ​(Enter your response rounded to two decimal​ places.)

Sagot :

Answer: 18.75%

Explanation:

Price elasticity of demand shows the change in quantity demanded as a result of a change in price.

If the price elasticity is negative, it means that quantity demanded and price move in opposing directions. If prices increase, quantity demanded decreases and vice versa.

Price elasticity of demand = Change in quantity demanded / Change in price

-0.8 = - 15% / x

-0.8x = -15%

x = -15% / -0.8

= 18.75%