Question

In: Economics

If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

True or False?

If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

Solutions

Expert Solution

The price elasticity of demand is equal to percentage change in quantity demanded divided by the percentage change in price. In this case, price elasticity  of demand is -0.5, therefore, when the price of cigarette increases by 10% it implies that the quantity demanded of cigarette will decrease by -0.5×10% which is equal to 5%, so we can say that the given statement is false.

Rahul Sunny answered 2 years ago
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