Free Demand Elasticity Essay Example

The price elasticity of demand measures the percentage change (increase or decrease) in the consumption of a product resulting from price changes (increase or decrease) . Therefore, the price elasticity of demand for nicotine products differ in the group of nicotine addicted users versus the group of social smokers. It could be deduced that for nicotine addicted users, the demand is inelastic; meaning, despite increases in prices of cigarettes, due to their addiction to the product, these users would persist in purchasing the product . The rationale for the inelastic demand was emphasized by an economist, Ramon Benedicto N. Marcelino, who averred that any price increase for cigarettes would not detract nicotine addicted users from its use since it would be significantly difficult from them to break the habit. On the contrary, for the group of social smokers, the price elasticity of demand is partially elastic; meaning, increases in price of cigarettes could result in decreased use and consumption of cigarettes. According to the article written by Hainer (2010), social smokers are described as intermittent users of cigarettes who only smoke when they are with friends or in the company of a social group. As such, social smokers could immediately stop smoking since they are not addicted to cigarettes. When there are significant changes in the prices of cigarettes, these type of smokers are perceived to manifest declines in purchases and use.
The government policy of imposing higher taxes to producers would be tantamount to “shift the tax increase to consumers rather than absorbing it” . The result of the tax increase would be significant increases in the prices of cigarettes which could succeed in changing consumer behavior. As accurately explained, exorbitant prices of cigarettes that result from the imposition of taxes could lead to decreases in consumption, especially in the short run. Further, nicotine addicted users could look for substitute products to fight potential withdrawal.

References

Why is demand for cigarettes inelastic? (2013, April 12). Retrieved January 15, 2015, from Business World Research: http://research.bworldonline.com/popular-economics/story.php?id=114&title=Why-is-demand-for-cigarettes-inelastic?
Hainer, R. (2010, April 24). Social smokers aren't hooked on nicotine, just smoking. Retrieved January 15, 2015, from CNN: http://www.cnn.com/2010/HEALTH/04/24/social.smokers/index.html
Perucic, A. (2012, February). The demand for cigarettes and other tobacco products. Retrieved January 15, 2015, from WHO: http://www.who.int/tobacco/economics/meetings/dublin_demand_for_tob_feb2012.pdf