Price Elasticity of Demand: Analysis

7-28-2013
ENC-220
Audra Sherwood

Price Elasticity of Demand Analysis

1. Who is likely to be more affected by tax increases on cigarettes: all adults or young adults? Why? Cite elasticity of demand estimates from the article to support you answer. I think that all smokers are affected by any price increase in their brand of cigarette. But young adults are found to respond more to price change. Studies show that cigarette tax increase is the most effective way to achieve long-run reduction in smoking in ALL segments of the population (CDC, 1998;Chaloupka & Grossman, 1996). So what I get from that is young adults have more of a response to price change either good or bad, maybe because in our early adult years we are not yet financially stable or still making minimum wage but long term figures show that in the long run if taxes stay at a steady increase then there will be a reduction in all cigarette smokers young adult or otherwise. Being a smoker, I do agree with the statistics because when the price of cigarettes did go up there were many people that I knew that either quit smoking or they did not smoke as much as they did before, including myself.
2. To have the greatest effect on reducing cancer from tobacco use, what other products should the government tax? Why? The government should tax any product that contains nicotine not only cigarettes. Chewing Tabaco as well as snuff is just as dangerous and can cause cancer. There are products put out on the market every day for tobacco and nicotine users and the research is correct, if the prices and taxes are raised on these products there will be a significant decline. Before a bum or anyone could walk down the street and ask a random person for a cigarette and get it but now that cigarettes are almost $10 a pack no one wants to just give them out so therefore if you can afford them then it would be a little harder for you to get them. I just think that it would be obvious that any product with nicotine tobacco or that can potentially cause cancer should not be on the market but since that is not going to happen then they should put a greater tax on those products.
3. What is the long-run elasticity of demand for cigarette smoking? What does this mean for the likely impact of taxes on long-term cigarette use? Why? Researchers are almost certain that an increase in the price of cigarettes will most certainly reduce the amount of cigarette smokers. Even though I understand and know firsthand how hard it can be to quit smoking, I do agree with the research. For cigarettes the long-run elasticity demand is said to ranges from -0.3 to -0.5, meaning that a 10% raise in prices could reduce smoking by up to 5%. I think that the impact would not be noticeable right away but as they say in the long-run the change will be evident and cigarette and tobacco use will decline significantly because more and more people would quit or cutting down on cigarette use.