Question

Suppose that when the price of cigarettes decreases by 20 percent, the quantity demanded increases by 10 percent. The price elasticity of demand for cigarettes is __________, making cigarettes an ____________ product (in this example).

Answer 1

Answer:

0.5

Inelastic

Explanation:

Given:

Price of cigarettes decreases = 20%

Quantity demanded increases = 10%

Computation of Price elasticity of demand:

Price elasticity of demand = % change in quantity / % change in price

Price elasticity of demand = 10% / 20%

 Price elasticity of demand = 0.5

If  Price elasticity of demand < 1, it is inelastic

So, the price elasticity of cigarettes is < 1, inelastic