Question

When the price of cigarettes was $3.00 per pack, and 40 billion packs were sold. When...

  1. When the price of cigarettes was $3.00 per pack, and 40 billion packs were sold. When the price dropped to $2.85 a pack because of a supply shift, 42 billion packs were sold. The demand for cigarettes was
  1. perfectly elastic
  2. perfectly inelastic
  3. inelastic
  4. unit-elastic
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Homework Answers

Answer #1

As per the information given

Price ($)

Quantity
demanded (billion packs)

Total
Revenue ($)

3

40

120

2.85

42

119.7

The demand must be price inelastic. As a decrease in the price the total revenues is also decreasing. Hence, the demand should be inelastic (Ed˂1)

Answer – Inelastic

Calculating the Price elasticity using the Mid-Point method

PED = (ΔQ ÷ ΔP) (P1+P2 ÷Q1+Q2)

PED = (-2 ÷ 0.15) (5.85 ÷82)

PED = 0.95

Demand is inelastic as PED ˂ 1.

Answer – (c) Inelastic

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