The Congressional Budget Office CBO has estimated the follow

The Congressional Budget Office (CBO) has estimated the following responses over a 10-year period to a 10 percent rise in cigarette prices. Long-Run Price Elasticities for Cigarettes Age Group 12-17 years Percent Decline in Smokin 5% 45% 4% 1.5% 18 vears What is the long-run price elasticity of demand for cigarettes among 40-year olds? Instructions: Enter your response rounded to two decimal places. 4.5

Solution

Elasticity of demand is the degree of change in quantity demanded due to some percentage change in prices keeping other factor constant.

Elasticity of demand=%change in quantity demanded/%change in price=1.5/10=0.15