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:

Initial Cost

The initial expense incurred to acquire an asset or start a project, excluding any subsequent costs.

Cash Flows

The sum of money flowing in and out of a company, particularly influencing its ability to cover short-term obligations.

Cost of Capital

The yield a business needs to generate from its project ventures to preserve its market valuation and draw in capital.

NPV

Net Present Value, a method used in capital budgeting to evaluate the profitability of an investment or project, by calculating the difference between the present value of cash inflows and outflows.