1. Consider the following policies of the government related to smoking. a. Suppose the price elasticity of demand for cigarettes is 0.4. If a pack of cigarettes costs $3 and the government wants to reduce smoking by 20 percent, by how much should it increase the price? Solution- With a price elasticity of demand of 0.4, reducing the quantity demanded of cigarettes by 20% requires a 50% increase in price, because 20/50 = 0.4. With the price of cigarettes currently $3, this would require an increase in the price to $4.44 a pack using the midpoint method (note that ($4.44 - $3)/$3.95 = 0.36)