Suppose the state of New York imposes a one dollar per pack tax on cigarettes, which increases their price by 30 percent, and as a result, the quantity sold declines by 20 percent. The price elasticity of demand for cigarettes is equal to
A) − 0.20.
B) − 0.67.
C) − 1.50.
D) − 3.00.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -20% / 30% = -0.67.

Suppose the State of New York Imposes a One Dollar