Price Elasticity of Demand

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What can we say about the price elasticity of demand for nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine addicted users, versus the group of "social smokers"? Price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. (Douglas, E., (2012) sec. 4.2) The price elasticity of demand is the same for addicted users and social smokers. Smoking is an expensive habit. In Mississippi where I live tax on a pack of cigarettes increased to $1.02 in 2009. When the tax on a pack of cigarettes increased my friends who are social smokers didn’t complain as much as my friends who were addicted smokers. Social smokers are in a higher price elasticity category than those who are addicted smokers. “The relative responsiveness of quantity demanded to changes in the price level, for a particular product. It allows an estimate of by what proportion demand is likely to change when an item's price is increased or decreased by a particular proportion.” (Douglas, (2012) In terms of elasticity and inelastic both describe how shift demand or supply for a certain goods it is elastic. Addicted nicotine users are considered inelastic while social smokers are considered elastic. When a price change results in little or no change in the level of supply or demand, the good is inelastic. The effectiveness of government policy aimed at reducing the negative effects of smoking on health. One of the Government’s justifications for its attempt to reduce smoking is by increasing the price of a packet of cigarettes to reduce the number of smokers. Local cities and townships are banning smoking in certain areas such as all state and local government offices and restaurants. As stated before increasing the tax on cigarettes has help some smokers to stop smoking but there could be more done.

Reference
Douglas, E. J. (2012). Managerial Economics, San Diego, CA: Bridgepoint Education, Inc.

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