Case Study in Demand Elasticity The Market for Cigarettes.
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Case Study in Demand Elasticity The Market for Cigarettes
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Transcript of Case Study in Demand Elasticity The Market for Cigarettes.
Case Study in Demand Elasticity
The Market for Cigarettes
Cigarettes: Effect of Price Increase on Demand
0
D1
$/pack
Packs/day (millions)
A
C
20
$2.00
$4.00
15
2012 Cigarette Prices (US$)
USA (Virginia)
Spain Italy Holland France Singapore Canada USA (New York)
Australia Norway0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
4.56
5.996.48
7.12
8.31 8.60
10.51
12.50
13.50
15.50
http://www.tobaccoatlas.org/costs/cig_prices/prices/
Cigarette Prices Around the World
US Cigarette Price vs. Consumption
Price/pack
Billions of packs/year
0.261.43
37.
1.751.75) - (4.25
2727)(17
P%
Q%
Estimating US Demand Elasticity for Cigarettes
Year
19702007
Price($2007/pack)
$1.75 $4.25
Quantitybillions of packs/year
27 17
Prohibition Against Cigarette Advertising
Anti-Smoking Adveritising
IN FRANCE
IN ITALY
Anti Smoking Laws
Legal Age– Spain, Holland: 16 – France, Italy: 18
Scope of Anti-Smoking Campaign: Shift Demand Curve
0
D1
Price/ pack
Packs per day(mill)
D2
Decrease in demand
Scope of Anti-Smoking Campaign: Flatten Demand Curve
0
D2
$/pack
Packs/day (millions)
D1
If the demand curve is flatter (more elastic) the same increase in price will case a greater reduction in demand
References
http://www.tobaccoatlas.org/costs/cig_prices/prices/
http://www.hc-sc.gc.ca/hc-ps/tobac-tabac/legislation/label-etiquette/graph/index-eng.php
http://www.imf.org/external/pubs/ft/fandd/1999/12/jha.htm
http://www.cdc.gov/tobacco/data_statistics/tables/economics/trends/index.htm
http://tobaccocontrol.bmj.com/content/11/suppl_1/i62.full
