Question

Suppose Government of Pakistan wants to put a curb on public smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs Rs.180 and the government wants to reduce smoking by 25 percent, by how much should it increase the price?



Kindly type only percentage change in the box given below. Do not use percentage sign in the box. Also, do not use any plus or minus sign in the box.​

Answer 1

• For tobacco products, price elasticity is usually less than 1 or tobacco demand is price inelastic. It means when price increases, tobacco consumption decreases by a lesser percentage compared to the price increase.

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Answer 2

Answer:

Concept:

$Price \: Elasticity \: of \: Demand = \frac{ \: \: \: \: \: \: \: \% Change \: in \: the \: Quantity \: Demanded (Q) } { \% Change \: in \: the \: Price (P) }$

Find:

We find that how much should it increase the price

Given:

% change in quantity demanded = 25%

price of demand = 0.4

Cost of a pack cigarettes = 180 rs

Explanation:

We given that

% change in quantity demanded = 25%

price elasticity of demand = 0.4

Cost of a pack cigarettes = 180 rs

We know

$Price \: Elasticity \: of \: Demand = \frac{ \: \: \: \: \: \: \: \% Change \: in \: the \: Quantity \: Demanded (Q) } { \% Change \: in \: the \: Price (P) }$

$0.4 = \frac{0.25}{\% \: change \: in \: the \: price}$

$\% \: change \: in \: the \: price = \frac{0.25}{0.4}$

$\% \: change \: in \: the \: price = 62.5\%$

We increase the price of 62.5%

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