Studies indicate that the price elasticity of demand for cigarettes in about 0.4. If a pack of cirarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should the govenment increase the price?
Answer in suppose to be $3.33. When I try to calculate using formulate I can not get the answer.
I got some of the calulation:
Percentage change in P=
.20 Quantity/.4 Price Elasticity of Demand = 0.5
_______ = 0.5
I have tried the calculation several ways and I can not arrive at the answer of $3.33.