Suppose the Price Elasticity of Teenagers' Demand for Cigarettes Is

question 457

Multiple Choice

Suppose the price elasticity of teenagers' demand for cigarettes is 2.0. If the government imposes a tax on cigarettes that raises the price by 10 percent, by how much will it reduce teenaged smoking?

• A) by 5 percent
• B) by 10 percent
• C) by 15 percent
• D) by 20 percent

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Definitions:

Premium

The amount paid for an insurance policy.

Face Value

The nominal or stated value of a security or financial instrument, such as a bond, note, or coin.

Taxable Income

Earnings that are taxable.

Medicare Tax

The amount of Medicare tax an employee pays is a set percentage of the entire income with no maximum amounts; the amount paid is split between the employee and employer.