question archive The price elasticity of demand for tobacco is equal to (-0
The price elasticity of demand for tobacco is equal to (-0
Subject:EconomicsPrice:2.88 Bought3
The price elasticity of demand for tobacco is equal to (-0.7). The income elasticity of demand equals 0.3. The price of tobacco has risen by 2%, and the income has increased by 3%. What will be the percentage change in quantity demanded, ceteris paribus?
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The quantity demanded will decline by 0.5 percent.
So the price drop will cause the quantity demanded to decrease 1.4 percent, and the income increase will cause quantity demanded to increase 0.9 percent, so the quantity demanded will decrease by a net of 0.5 percent (-1.4% + 0.9%).
