October 3, 2009
“On April 1, 2009, the largest tax increase in the history of tobacco and cigarette products went into effect (Fox news, 2009).” “The single tax increase was anywhere from 39 cents to $1.01 per pack. In February, 2009, the tax was signed into law by President Obama who has struggled, himself to quit smoking, to fund the Children's Health Insurance Program (Koch, 2009)”. But tobacco states and tobacco companies began raising prices before the tax increase even went into effect in order to ease their customers, smokers, into the higher prices, according to Fox News.
“On average a 10% tax increase on tobacco sees about a 4% drop in cigarette smoking (McKay, 2009)”. “It was expected, of the 45 million smokers ,1 million will stop smoking due to the tax increase (Koch, 2009)”. But the cigarette companies had already cut back on the supply, in anticipation of the surge in quitters; in anticipation of the reduction of demand. They were trying to avoid a surplus. They experimented with expected drop in demand, by altering the supply and raising the price beforehand so cigarettes would find their equilibrium price without much ado. Had the tobacco companies not begun early, adjusting their prices, it would have taken several months of surplus and reduced demand for the price to find it equilibrium, the price that meets what the public will pay, and where there is no surplus of goods.
They seem to have found the going rate rather quickly. Those who decided they wouldn’t pay the inflated prices quit, those who kept smoking have just adjusted to the higher price. No great feats of magic. No protests. A little bit of sticker shock, but most die-hard smokers, who make less than $36,000 a year, just went on shelling out the extra money according to a Gallup Poll.
“ On top of the federal tax increase some states were contemplating tax increases of their own (Koch,... [continues]
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