Consider public policy aimed at smoking.?

Question

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%, by how much should it increase the price?

b) If the government permanently increases the price of cigarettes, will the policty have a larger effect on smoking 1 year from now or 5 years from now?

c) Studies also find that the teenagers have highter price elasticity than do adults. Why might this be true?

Answer 1

a) 0.4<1 Relatively inelastic. It means a change in price doesn't have that much of an effect.

Elasticity = change in Q divided by change in P

0.4 = 20% / P%
P% = 50% increase or increase by $1

b) I would guess either way on this, but if the theory is people slowly start to quit because of increased prices, they may gradually cut back, or just not quit right away, then if some people don't pick up the habit because of pricing, then 5 years from now

C) Higher price elastic of demand means they change a lot with higher prices. Means price increases they stop buying. So then I would guess it menas that more of the adults are addicted and can't stop. Teenagers, decide not to pick up the habit if they can't afford it.

Edit: Sorry, I changed answer to b) Math isn't happening very well for me today.

Answer 2

Govermnent try to make people quit smoking, that is why it is ready to rise the price as high as they can.

They consider when cigarettes will be extremely expensive, less people will smoke.

Answer 3

a) a lot some people will give there homes for an addition!
b) they have increased the cost of smoking yearly at the same time i still see the same smokers! I quit amost a year ago! Why? I wanted to! that's the bottome line!
c) i don't know!
sorry!

Answer 4

On #3---teens income is disposible...they aren't worried about paying rent, utility bills, food, insurance, etc...mostly all of their income is discretionary, so they can be more flexible about spending it.