If the Elasticity of Demand for Cigarettes Is 0

question 24

Multiple Choice

If the elasticity of demand for cigarettes is 0.4, then an increase in the price of a pack of cigarettes from $1.00 to $1.30 would reduce quantities demanded by about

• A) 27 percent.
• B) 40 percent.
• C) 12 percent.
• D) 95 percent.

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Definitions:

Federal Reserve

The central bank of the United States, tasked with regulating the U.S. monetary and financial system.

Reserve Ratio

The fraction of depositors' balances banks must have on hand as cash, a regulatory requirement determined by central banks to ensure the stability and liquidity of the banking system.

Monetary Policy

The process by which a central bank controls the supply of money in the economy, primarily through interest rates.

Federal Reserve District Banks

The 12 regional banks in the Federal Reserve System, each serving a specific geographic area of the United States, responsible for implementing the country's monetary policies.