Answer
A doubling of the tax on beer will reduce the number of highway deaths by about 12%.
Work Step by Step
The study says that the doubling of the beer tax on a 6 pack of beer would raise the price from 0.16 t 0.32. Therefore, the change in price is 100%
It also states that the price elasticity of demand for the young adults in this study is 1.30.
The formula we need is:
% change in quantity demanded = % change in price x Elasticity of Demand
When you plug in the numbers you get:
% change in quantity demanded = 100% x 1.30
%change in quantity demanded = 130%
Remember, this is for a 6 pack of beer. So we have to divide by 6 to get the final result:
130/6 = 11.8%, or about 12%, as stated in the study.
