4. Let\'s consider two smokers A and B who, following a 10% increase in the pric

Question

4. Let's consider two smokers A and B who, following a 10% increase in the price of cigarettes, cut their smoking by 2% and 20% respectively. a) What is the price elasticity of demand for each consumer? Show all the steps of your calculation to get full credit b) Are A's and B's consumptions of cigarettes elastic or inelastic? Whom you think is the occasional smoker and who is the regular smoker (that is, dependent on smoking)? Explain clearly in 2 or more sentences c) Suppose that for a consumer C the price elasticity of demand for cigarettes is equal 0.5. How big will the drop in cigarettes consumed be following a 20 percent increase in cigarettes' prices? Show all the steps of your calculation to get full credit. d) If you are seller of cigarettes, and you realize that when you raised your price by 10%, your quantity sold are reduced by 2% in one market and by 20% in the other market, in which market your conclusion

Explanation / Answer

Answer(Que-3)

Benefits of competition are

Drawbacks

Answer(Que:2)

In perfect competetion there is large number of firms. A single firm has small part in total supply. Perfect compettitve firms are price taker not price maker. price is give by industry. they can earn normal profit in long run .

But if a firm operating in monopoly market condition it means it has full control over market supply. Monopoly firm is a price maker. so , it sets price where its profit is maximum.

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