Supply and Demand for Tobacco

Topics: Supply and demand, Consumer theory, Tobacco Pages: 4 (966 words) Published: December 3, 2013
A)
I have chosen cigarettes to be my market transaction as it is has a very large and wide market. A cigarette is a product consumed through smoking and manufactured out of cured and finely cut tobacco leaves and reconstituted tobacco, often combined with other additives1, Cigarettes is produced to satisfy the growing population of smokers. Smokers are hooked to a substance called nicotine that is in a cigarette along with other harmful substances. Cigarette is a great product to be selling for the firm. As the customers(smokers) are addicted to nicotine , these firms can rely on them for continuous demand and they can easily increase supply. Therefore, the firms can easily monopoly the market and fix their own price. One of the reasons for a firm to enter the market of producing cigarettes would be the profit. These giant tobacco companies makes billion yearly profit after tax.
However, these firm has to build their reputation through quality. They have to spend millions in advertisement, to make their brand of cigarette the ‘cool’ choice. The usual reason of customers securing this product is because they have no other choice, once you get hooked on it, you have to keep supplying your body with nicotine. At this moment the firm has secured another life-long customer.

B) A shift in the cigarette demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase cigarettes changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held constant. A change in price leads to a movement along the demand curve and is referred to as a change in quantity demanded.2 Income

What would happen to the demand for cigarettes if unemployment increases? Most...
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