Please explain thoroughly and check the first two answers! Consider public polic
ID: 1141220 • Letter: P
Question
Please explain thoroughly and check the first two answers!
Consider public policy aimed at smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.2. If a pack of cigarettes currently costs $5 and the government wants to reduce smoking by 10%, it should increase the price by 50% . If the government permanently increases the price of cigarettes, the effect on smoking 1 year from now will be larger than the effect 3 months from now Studies also find that teenagers have a higher price elasticity of demand than do adults. Which of the following statements are consistent with this result? Check all that apply. It is legal for adults to consume alcohol, so many choose to spend their money on that good rather than cigarettes. Adults are more likely to be addicted to cigarettes. Teenagers do not have as much income as adults, so they are more price sensitiveExplanation / Answer
a) To reduce the demand by 10% with the elasticity of 0.2 the government need to increase the price by (X)
0.2 = -10/ (X)
-10 /0.2 = (X).
50%.
b) The effect on smoking after 1 year will be larger. after 1 year there might be more substitute for smoking in the long term things are more elastic increasing the effect.
c) "Teenager do not have much income as much as adults, so they are price sensitive. " they just can't meet the demand with extra price.