Consider public policy aimed at smoking. Studies indicate that the price elasticity of demand for cigarettes is about 0.8.

If a pack of cigarettes currently costs $5 and the government wants to reduce smoking by 20%, it should increase the price by .

If the government permanently increases the price of cigarettes, the effect on smoking 1 year from now will be than the effect 3 months from now.

Studies also find that teenagers have a higher price elasticity of demand than do adults.

Which of the following statements are consistent with this result?

Check all that apply.

a. It is legal for adults to consume alcohol, so many choose to spend their money on that good rather than cigarettes.

b. Adults are more likely to be addicted to cigarettes.

c. Teenagers do not have as much income as adults, so they are more price sensitive.

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

1). Price elasticity demand for cigarettes = 0.80

Government want to decrease smoking = 20% = 0.20

Require increase price rate = 0.20 ÷ 0.80 = 0.25 = 25%

Government Should Increase the Price by

= Current Cost of Cigarettes Pack × Require Increase Price Rate + Current Cost of Cigarettes Pack

= $5 × 25% + $5

= $1.25 + $5

= $6.25 a pack

2). If the government constantly increases the price of cigarettes, the impact on smoking will be higher in 1 year from now than in 3 months from now. It takes time to break a Smoking habit. And it takes people a long time to get out or reduce their smoking addiction.

3). According to the study, adolescents have a higher demand price elasticity than adults because adolescents have less income than adults, and they are more sensitive to price. If the price of cigarettes rises teenagers don't have enough funds to invest in their smoking habits because of their low savings and wages. Cigarette addiction in adults is more than youth addictions. And the demand for cigarettes among adults is difficult to reduce.

i would say a certificate of deposit, so you're not locked into a long term, and it has more security than a mutual fund.

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