4. Elasticity

The price of widgets is currently \$44 with a quantity demanded of 200,000 units. If the price decreases to \$36, the quantity demanded increases 280,000. Using the midpoint method, what is the price elasticity of demand? Is demand elastic or inelastic?

Assume that the price elasticity of demand for cigarettes is 0.4. If a pack of cigarettes currently costs \$6 and the government aims to decrease smoking by 20 percent, by how much should it increase the price?