Compute range of price elasticity of demand for cigarettes

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Reference no: EM131020536

Economists' estimates of price elasticities can differ somewhat, depending on the time period and on the markets in which the price and quantity data used in the estimates were gathered. An article in the New York Times contained the following statement from the Centers for Disease Control and Prevention: "A 10 percent increase in the price of cigarettes reduces consumption by 3 percent to 5 percent." Given this information, compute the range of the price elasticity of demand for cigarettes. Explain whether the demand for cigarettes is elastic, inelastic, or unit elastic. If cigarette manufacturers raise prices, will their revenue increase or decrease? Briefly explain. Source: Shaila Dewan, "States Look at Tobacco to Balance the Budget," New York Times, March 20, 2009.

Reference no: EM131020536

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