Vimal Shah        The Economics Of Smoking        1/12/03

The Economics Of Smoking

Word count: 1515

Part A

There are many determinants of demand, however, only certain factors of demand will be relevant to cigarettes and I will explain why this is so.

One of the most important factors of demand is ‘price’. Price in fact is a fundamental law of economics that embodied the downward sloping demand curve. In relation to cigarettes it can be said that as the price of cigarettes increases the demand for them decreases, however the change in demand will be less than the change in price as cigarettes are price inelastic due to their addictive nature. The reason why demand may fall even if by a small amount could be due to the fact of “higher tobacco taxes reduce smoking and smoking related sickness as people cut down, stop smoking, or never start because of the high cost” (ASH (undated) basic facts no.3: smoking and economics).

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        The price of cigarettes can be interlinked with another determinant of demand, which is the price of substitutes and supplements. As the price of cigarettes increases (this means the price of all brands of cigarettes generally increase) the demand for substitute goods will increase, however there are not many substitute goods for cigarettes other than cigars, but cigars are generally more expensive than cigarettes. Thus as price of cigarettes increases the change in demand will fall but less than the change in price due to it being price inelastic as mentioned before. Another determinant of demand is income. “As peoples ...

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