If the number of highway deaths among young people is roughly proportional to their beer consumption and young peoples' elasticity of demand for beer is 1.5, then a tax increase that increases the price of beer by 20% would roughly reduced highway deaths of young people by
A) 1.5%.
B) 13.33%.
C) 20%.
D) 30%.

Question

Quizplus · Accepted Answer

The elasticity of demand of 1.5 means that a 1% increase in price leads to a 1.5% decrease in quantity demanded. Therefore, a 20% increase in price would lead to a 30% decrease in beer consumption, and thus a 30% reduction in highway deaths, assuming proportionality.

If the Number of Highway Deaths Among Young People Is