Question

Assume the price of cigarettes increases by 50% due to a new law that raises the tax on

cigarettes. In the short run, PED for cigarettes is 0.3. By what percentage will the

quantity demanded fall following a 50% increase in the price?

Answer 1

$PED=\frac{\Delta Q}{\Delta P}$

$0.3=\frac{\Delta Q}{1.5}$

$\Delta Q=0.45$

45%