Assume that the State of Florida wants to reduce cigarette smoking by fifty percent (50%).

A study found that own-price elasticity of demand for cigarette coefficient for Florida is

0.58. The current price per pack of cigarette in Florida is $5.00.

Question:

(a) How many percent tax (increase) will the State of Florida impose on a pack of cigarette

to achieve the fifty percent (50%) reduction in cigarette smoking in Florida?

(b) What is the new, tax-inclusive price per a pack of cigarette in Florida?

INSTRUCTIONS:

(1) Derive the answer to the (above) question Algebraically or Mathematically.

(2) Use the appropriate steps and formula in deriving your answer(s).

(3) Show all steps used in deriving your answer(s).

(4) EXPLAIN IN DETAIL, the economics of your derived answer.

(5) Discuss the weakness(es) or the shortcomings of using this type of technique in public policy practice.

(6) Use economics terminology in your description.