Because of a legal settlement over health care claims, in state 1999 the U.S. tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline in cigarette sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarettes? Explain.

Because of a legal settlement over health care claims, in state 1999 the U.S. tobacco companies had to raise the average price of a pack of cigarettes from $1.95 to $2.45. The decline in cigarette sales was estimated at 8 percent. What does this imply for the elasticity of demand for cigarettes? Explain.
Answer:

the percentage change in price is 23% while that of quantity demanded is 8%. therfore the price elasticity of demand for cigarettes is inelastic. people’s consumption of cigarettes will still not decrease beacuse of their habit and addiction for smoking.

Asked on February 12, 2018 in economics.
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