Consider public policy to reduce smoking.

        A second factor that affects price elasticity of demand is time. The longer the time period, the more price elastic is the demand for the product. For example, before the ban on leaded petrol was introduced, an increase in the price of leaded petrol would not have changed my demand for it in the short term. However, the next car that I bought would more than likely use unleaded petrol. This is very similar to the trend we would see with an increase in the price of  cigarettes. An addiction cannot simply be forgotten about, but over time and with enough will power (will power could be increased by the realisation of a 50% increase in price), the number of people who still buy cigarettes at the new, higher price will decrease.

c)        ‘Studies also find that teenagers have a higher price elasticity (for cigarettes) than adults’. A higher price elasticity can be explained in two ways compared to the general price elasticity of cigarettes, in which a 50% increase in price will result in a 20 % decrease in demand. The first method of explaining a higher price elasticity is that a 50% increase in price will result in a decrease in demand >20%. The second is that to achieve a 20% decrease in demand, an increase in price of <50% is required. The simple explanation for this is a known determinant in price elasticity, Commodity Share. This means the amount spent on a good as a proportion of total income. In general, the higher the % of income spent on the good, the higher the price elasticity of demand. A teenager who is at school, college or university or in an unskilled, relatively low-paid job will spend a higher % of his/her income on the same number of packets of cigarettes as an adult with a higher annual wage. This means that their price elasticity of demand for cigarettes will be higher than adults.

        A second way of looking at it is that most adults who smoke have probably done so since an early age, either when they were not fully aware of the health implications, or when they simply did not care. Somebody who has been addicted to nicotine for many years is obviously going to find it harder to shed their addiction than somebody who has only recently taken up smoking, or worse still only smokes because they perceive smoking as an ‘image’ with which they wish to be connected. This ability to give up smoking more easily is indicated by the higher price elasticity of teenagers, they are more prepared to give up than adults are when the price of cigarettes is increased.

        In conclusion, the government policy to reduce smoking by increasing the price of cigarettes will work, however it will take a long while. Some people simply do not want to give up smoking and although they cannot really afford to smoke, will carry on regardless. It is people like this who will not see the health issues behind the increase in price of cigarettes but only that they are being forced to pay more for their habit, they will be all to quick to criticise the government for placing an unfair tax on those who feel that they have no choice but to pay. Perhaps a better method for reducing the number of smokers would be to increase the price less and make up for this by banning smoking in public places, banning tobacco advertising within the community (including sporting events and billboards etc.) and increasing awareness as to just how much smoking really does harm your body.

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Bibliography:

• Colin Ash, Lecture notes.

• N. Gregory Mankiw, Principles of Economics Third Edition.

• , The Politics of smoking in Britain.

• , Legislation and Policy.

• , Comparative Statistics and Demand.