Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.

According to the midpoint method, the government policy should have reduced smoking by :

(A) 30%.

(B) 40%.

(C) 80%.

(D) 250%.

(E) 5%.

B) 40%

Explanation:

We know that elasticity = percent change in quantity/percent change in price

From the midpoint formula, we know how to find the percentage change in

price as       plugging in the values, the percent change in price comes out as 100%

using the elasticity formula we can now find the percent change in quantity

elasticity = percent change in q/percent change in p

0.4 = percent change in q/100

percent change in q = 40%

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