Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement from the Centers for Disease Control and Prevention: "A 10 percent increase in the price of cigarettes reduces consumption by 3 to 5 percent." Given this information, compute the range of price elasticity of demand for cigarettes. Source: Shaila Dewan, "States Look at Tobacco to Balance the Budget," New York Times, March 20, 2009. According to the article, the price elasticity of demand for cigarettes ranges from (the lowest end of the range in absolute value) to . (Enter your responses as real numbers rounded to two decimal places.)

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sebastiansierraocm sebastiansierraocm · Answer 1 · 2020-02-23T04:47:13+01:00

Answer:

Ranges from 0.3 (the lowest end of the range) to 0.5.

Explanation:

Price elasticity of demand if a 10% increase in price reduces consumption by 5%:

PED = 5% / 10%

= 0.5

Price elasticity of demand if a 10% increase in price reduces consumption by 3%:

PED = 3% / 10%

= 0.3

In both cases, cigarettes have an inelastic price elasticity of demand, because the quantity demanded changes proportionally less than the price.