If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to
A) −0.2.
B) −0.4.
C) −0.8.
D) −5.

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 -8% / 20% = -0.4.

If an Increase in the Excise Tax Imposed on Cigarettes