Price Elasticity For Nicotine Products
Contents
TOC o “1-3” h z u HYPERLINK l “_Toc377397333” What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of “social smokers”? Can we say whose demand is likely to be more elastic? Why? PAGEREF _Toc377397333 h 1
What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of “social smokers”? Can we say whose demand is likely to be more elastic? Why?Elasticity is the change in the quantity of nicotine products consumed due to a change in the factors that affect its sale and in this case it is the price. In an effort to ensure that people are protected from health issues related to nicotine the government has increased the taxes charged on cigarettes (Cordes, 2005). The cigarette industry is more of a monopolistic market structure and an increase in tax is passed on to the consumer, this leads to an increase in the final price of the nicotine products.
There are two types of smokers, the ones who are addicted to nicotine and the social smokers. An analytical view of the differences would be:
a). an addicted smoker
An addicted smoker Is one who cannot go a day without smoking several cigarettes. Most of the times, they are referred to as chain smokers. If the person goes for a while without smoking they are bound to experience withdrawal symptoms like migraine, nausea and loss of appetite. This means that they are dependent on the cigarettes. Increases in the price of the cigarettes will affect them because cigarettes are a daily good they consume. In this case they may aim to decrease the quantity of cigarettes they smoke in order to maintain the habit (Landsburg, 2010). Their price elasticity curve will be elastic as an increase in the price level will lead to a decrease in the quantity consumed.
b). a social smoker
These are people who will smoke on specific occasions and when they are out with friends. To them the price of the cigarette has no effect on the quantity they consume because they do it once in a while and will not be affected by the increases in the quantity they consume. They consume the cigarettes because they enjoy the habit and not because they have to and the occasional smoking does not dig a hole in their budget. Their price elasticity curve is inelastic; this is because increase in the price does not lead to decrease in the quantity consumed (Landsburg, 2010).
Price elasticity for addicts Price elasticity for social smoker
Price Price
Quantity Quantity
References
Cordes J. Joseph, Ebel D. Robert, Gravelle G. Jane, (2005), The Encyclopedia of Taxation and Tax Policy, Oxford University Press, New York
Landsburg Steven, (2010), Price Theory and Application, Springer Publishers
