a. Consider public policy aimed at smoking; i. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it inc

a. Consider public policy aimed at smoking; i. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes currently costs $2 and the government wants to reduce smoking by 20 percent, by how much should it increase the price?
[4 marks]
b. Studies also find that teenagers have higher price elasticity than do adults. Why might this be true? Explain.
[4 marks]
c. Suppose that business travelers and vacationers have the following demand for airline tickets from New York to Boston:
Price Quantity Demanded
(Business travelers) Quantity Demanded
(Vacationers)
$150 2,100 tickets 1000 tickets
$200 2,000 tickets 800 tickets
$250 1,900 tickets 600 tickets
$300 1,800 tickets 400 tickets

i. As the price of tickets rises from $200 and $250, what is the price elasticity of demand for
1. business travelers
2. Vacationers?
[6 marks]
d. Why might vacationers have a different elasticity from business travelers?

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