Price Elasticity of Demand for Cigarettes

Price elasticity of demand for tobacco (a) Research indicates that the price elasticity of tobacco demand is about 0.4. If tobacco packs now cost 2 pounds and the government wants to reduce smoking by 20%, how much should they be increased? Since the price elasticity of demand is equal to the change in demand ratio divided by the price ratio, in order to calculate the price of how much the government needs to increase tobacco, change the formula to a form, The quantity ratio needs to be changed.

Price elasticity refers to the relationship between price and demand for a specific consumer product. In the context of youth smoking, there are literature on the price elasticity of youth's demand for tobacco. The focus of the early tobacco control intervention in the United States estimated that youth smoking has decreased by about 14% each time the youth's cigarette demand elasticity gets -1.44, which is a $ 0.10 increase in tobacco price / packaging52 . It affects whether teenagers use cigarettes for experiments 53, but there is ample evidence that this price is important for purchasing their own cigarettes.

How much will your customer receive? This is based on "price elasticity" and you can google to better understand it. Basically, "inelastic product" means that price increases do not significantly affect demand (tobacco, medicine, alcohol, etc.), and if it is "elastic," demand is Is greatly reduced. Rapid price cuts will greatly increase demand. What is a customer replacement? In economics this is called "alternative product". If you introduce carbonated water products, you might think your competitors are Badoit and San Pelligrino, but alternative products are flat water like ordinary water or cold green tea maybe. Most products have alternative worthy to know.

Time is the third factor affecting the elasticity of demand. As the tobacco price rises by 1 pound, only a handful of alternative smokers will continue to purchase daily cigarettes. This means that the demand for cigarettes is not elastic as price changes do not significantly affect demand. But if you realize that it is impossible or impossible for customers or consumers to pay the amount they have increased, they will definitely end, but in the long run they do so. For customers, tobacco price elasticity will become elastic in the long term.

Referring to the figure above, as cigarette prices rose from P1 to P2, tobacco demand decreased from the first quarter to the second quarter. The elasticity of the demand curve can be determined by coping with the price elasticity of tobacco demand. This is because if the elastic demand price (PED) is less than 1, it is an inelastic demand curve. Because the price of elastic demand (PED) is smaller than this, the graph is inelastic demand curve. Therefore, the numbers are more flat. Due to personal dependence on tobacco, the demand for tobacco is not flexible. Therefore, no matter how much the price goes up, the demand for cigarettes decreases only slightly.