Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently cost $2 and the government wants to reduce smoking by 20%, then by how much should it increase the price?

Government should increase the price from $2 to $3.

Explanation:

Price elasticity of demand is calculated by dividing percentage change in quantity demanded by the percentage change in price.

Therefore:

Price elasticity of demand =

From the question, we see that the price elasticity of demand for cigarettes is about 0.4.

Percentage reduction in quantity demanded = 20%

Percentage reduction in price = x

We calculate thus:

0.4 = 20/x

0.4x = 20

x = 20/0.4

x = 50

Percentage reduction in price is therefore 50%

This means that government should increase the price from $2 to $3.

the answer would be voluntary exchange -

"the act of buyers and sellers freely and willingly engaging in market transactions. moreover, transactions are made in such a way that both the buyer and the seller are better off after the exchange than before it occurred."

hope this : )

-shy

answer trochanter; i believe this is correct, plz check first, good luck;