Answer to Question #172071 in Economics of Enterprise for amanda

Question

 Studies indicate that the price elasticity of demand for cigarettes is 0.2. If a pack of cigarettes currently costs $5.00. and the government wants to reduce smoking by 40% by how much more should the government tax cigarettes?

Answer 1

$$p_1=5$$

$$p_2=5+t$$

$$\varDelta p=\frac {p_2-p_1}{p_1}=\frac{t}{5}$$

$$E=\frac{\varDelta Q}{\varDelta p}$$

$$t=15$$