Suppose the state of Colorado 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 absolute value of 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 Colorado Imposes a One Dollar Per