Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
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Chapter 5, Problem 10PA

Subpart (a):

To determine

Percentage change in price.

Subpart (b):

To determine

Impact of the policy change on the consumption.

Subpart (c):

To determine

Impact of the policy change on the consumption.

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Consider public policy aimed at smoking. a. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? b. If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now? c. Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?
Consider public policy aimed at smoking. a.Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, how much should it increase the price? If the government permanently increases the price of cigarettes, will the policy have a larger effect on smoking one year from now or five years from now? Studies also find that teenagers have a higher price elasticity than do adults. Why might this be true?
The US Dept of Agriculture estimates that the elasticity of demand for cigarettes is 0.3 for adult smokers and 2.5 for teens. Also the income elasticity of demand for cigarettes is 0.5.  A. Suppose the federal government imposes a tax on cigarettes that raises the price by 15 percent. What effect will this have on cigarette consumption by adults? B. Suppose that it was estimated this year there were 2 million teen smokers. What would be the predicted number of teen smokers under the policy in (A.).
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