Supply and Demand for Tobacco

In the article ‘Cigarette tax hike sparks panic buying’, Hall (2010) discusses the effects of tax increase on cigarettes. The government has decided to raise the tax on cigarettes by 25%, costing $2.16 more on a pack of 30 cigarettes. This government intervention is an attempt to stop people from smoking and reduce the health bill caused by those who smoke. The increase in tax is expected to save $5 billion more of the people’s tax dollars and the government decided that it will be put into a better use for its health and hospitals reparations. This contractionary fiscal policy is expected to reduce the total tobacco consumption by approximately six percent and drive down the number of smokers by 87,000.

Threat of substitutes for the smokeless tobacco industry is not very high. In this context, its primary “competitor” is cigarettes. However, smokeless tobacco is a unique product. It is differentiated

A strategy that will directly affect the supply of cigarettes is raising the taxes on businesses that sale cigarettes. If the taxes are raised on businesses that sell cigarettes, then many businesses will stop selling cigarettes to avoid paying higher taxes. If many businesses stop selling cigarettes then it will be harder for smokers to get cigarettes. This will also causes the businesses that still decide to sell cigarettes to have higher prices on the cigarettes causing smokers to not buy them.

The cigarette industry is known to cause market failure. It burdens society with disease and reduces social economic welfare. These negative externalities are thought to far outweigh any economic benefits that the industry yields (Guhl & Hughes n.d). To combat this, governments implement indirect taxes with the aim of reducing the number of smokers. Evidence shows that this has been the most effective means of reducing demand for cigarettes (Cotter, Dunclop & Perez 2011). In the context of the competitive model, this essay will explain how taxes on cigarettes reduce demand, including discussion of the short-term and long-term price elasticity of demand, how the tax burden is distributed between consumers and producers, redistribution of

This is a perfect example of a change in demand; when the demand increases, at the same or even a higher price, more quantity is demanded. In the figure below, a shift to the right in the demand curve signifies an increase in demand.

Increased spending on these products, more labor intensive than the production of tobacco related products, is more likely to increase employment as demands for tobacco products decreased and the demand for other products increased. Though the ban on the advertisement of cigarettes would decrease the number of jobs related to the farming of tobacco and the production of cigarettes, increased demand in other sectors would more than compensate for those losses.

Tobacco today is one of the leading industries in today’s society, despite the effect that it has on the end result of everyone’s health. Nicotine in tobacco is very addicting and it creates the urge to continue buying the products. It is a multi-billion dollar industry. In 2014, the tobacco industry paid $9 billion dollars to advertise its products to its consumers. This equates to roughly $1 million dollars per hour. To express the magnitude of numbers, the leading manufacturer, Philip Morris, brought in $31 billion dollars in sales in 2012 for tobacco sales. Medical conditions or illnesses caused by tobacco cost

The purpose of this paper is to provide researched information on the how consumers continue to risk their health through the consumption of cigarettes regardless of hazard warnings and how the government continues to implement increased taxation to economically affect those consumers. In today’s society, there are many more consumers that are becoming health conscious compared to consumers of decades before, but there are still those that are addicted to tobacco products making it more difficult to embrace their own health. In order to make the world smoke-free, the U.S. government is taking a stand on the economical side by increasing excise taxes hoping to encourage those with a tobacco addiction to become more money as well

The tobacco industry to this day still continues to be a very profitable business for many reasons. One is the attraction to young adults. Even though it may be illegal to advertise tobacco products on television, shows and movies starring famous actors are shown smoking. This influences those younger to think that doing so is socially acceptable, therefore perfectly fine to do the same. This increases the amount of people they sell to. Also, the smokeless tobacco has many flavors that draw people into their product, many being the youth. It is mistakenly seen as to be healthier and less addictive than regular flavors due to its innocent flavor. After the tobacco is tried by a person, they tend to be hooked and want more due to nicotine. Being that they practically depend on

The market structure for the tobacco market in the United Kingdom is the monopolistic competition. The reason behind this is because the various organisations involved in this industry are able to make decisions on the pricing and output based on their desired

A dangerous product that can kill a human every second around the world and can carry a large cost for families and their treatment for diseases such as cancer and heart disease is caused by the product called tobacco. Tobacco-related diseases and deaths can affect smokers’ lives at an early stage and cause a decline in productivity and income. Smoking will not only affect the person’s life, but will also affect people around him or her by causing many diseases. Nicotine found in cigarettes is a strong addiction, substance equal to heroin and cocaine; therefore, it will be difficult to quit smoking, but to convince smokers to get rid of the smoking habit, governments can raise tobacco products’ taxation, make users pay higher health insurance premiums, and make smokers pay a health tax.

Given the oligopolistic nature of the US tobacco product industry, the remaining firms are forced to compete through aggressive marketing and advertising strategies that are subsidized by their high economic profits. A 1976 report for Phillip Morris (now Altria) described the nature of tobacco product pricing as “some sparring among potential price leaders, after which the rest of the industry accepts the resulting price structure” (IARC, 2014). This report offered that a “relative absence of price competition in the market” allowed prices to offer high profits which were then used to support other marketing and advertising activities, which is where cigarette companies were more likely to compete aggressively with one another (IARC, 2014). Tobacco companies have consistently raised prices on their products beyond the various tax increases put on at the state and federal level, passing on this additional cost to the customer (USDA Economic Research Service, 2007). Moreover, the tobacco companies have also acted opportunistically as a group by earning more profits on a per unit basis after the introduction of tobacco taxes. This price increase strategy could be recommended if consumers don’t associate the price increases with profit-seeking from the tobacco companies, but instead associate it with the government (IARC, 2014).

Cigarette consumption is a worldwide growing business that concerns about the health problems issue publicly by providing all the maternal element that used to make health strategy weak and down. The impact of the anti-smoking campaign on the consumption of cigarettes is measured by fitting cigarette demand functions to pre-campaign dat, projecting "ahead" as if the campaign had not occurred, and then comparing these predictions with realized consumption. However, the cumulative effect of persistent publicity supported by other public policies, has been substantial: in the absence of the campaign, per capita consumption likely would have exceeded its actual 1975 value by 20 to 30 per cent. This is a conservative indication of the effectiveness of the campaign, for it ignores other potentially important and desirable behavior changes, such as the shift to low "tar" and nicotine cigarettes.

Background Cigarette Litigation - At the heart of the paradigm of societal law, tobacco and tobacco related products remain a controversial issue. Globally, about 33% of adults use some type of tobacco daily, even though it likely has a strong effect on the deaths of over 5 million per year. In developing countries, largely due to stricter laws and bans on advertising, smoking has leveled off however, in developing countries the number of active smokers has risen each year over the past two decades ("Tobacco Facts," n.d.). The industry itself is very competitive, yet highly profitable and able to divert huge amounts of revenue to defend any potential litigation. The tobacco industry is dominated by a few large firms; price competition may also be restrained, either by outright collusion, or more commonly through "parallelism" of pricing decisions (See: Mackay, 2006; "Tobacco The Industry Perspective, 2009). The intense advertising efforts of the tobacco industry lead to strong brand awareness and subsequently to a highly differentiated product that can demand a higher price than would be the case if the products were indistinguishable (Glantz, 1998). Additionally the tobacco industry's revenues are highly consistent and stable, generally unaffected from booms or busts in the economy.

In 2008, 21% of adults in America aged 18 and older were current cigarette smokers while another 21% had been former smokers and 58% had smoked less than 100 cigarettes in their life, according to a CDC survey (Pleis 10). These statistics result in almost half of the United States population being smokers at one point in their life. The tobacco industry is huge in order to provide cigarettes to the quarter of Americans that currently smoke. The statistics that resulted from the survey did not even include other types of tobacco products, which are just as harmful. However, even realizing the harm that tobacco products can cause, tobacco companies use a variety of devious methods to draw people in to buy their product, especially younger