Studies indicate that the price elasticity of demand for cigarettes is about 0.4. a government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6. according to the midpoint method, the government policy should have reduced smoking by (a) 30%.(b) 40%. (c) 80%. (d) 250%.(e) 5%.

(B) 40%

Explanation:

↓Q / ΔPrice = Price-elasicity

The price elasticity is the relationship between a change in price with the quantity demanded of a certain good assuming, other factor remains constant.

ΔPrice  = (P0 - P1)/((P0 + P1)/2) = (2 - 6)/((2+6)/2) = 4/4 = 1

We know that price elasticity is 0.4

Now we can solve for the change in the quantity demanded:

↓Q/ 1 = 0.4

↓Q = 0.4 x 1 = 0.40 = 40%

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