Price Elasticity-Tobacco :Lau Wei Liam

As we all know, tobacco carry serious health effects to us. According to a study presented at the 14th World Conference on Tobacco or Health, theres one billion men and about 250 million women use tobacco every day around the world.(Arthur,2012)

Price elasticity of demand is the responsiveness of consumer to the price change of the product. The demand of tobacco can be said that is inelastic. (Connell,2012) This is because when increasing the price of tobacco results in smaller percentage change in quantity demanded. When peoples get addicted with tobacco, the price wouldn’t be an influence and the amount of tobacco products will remaining smokers consume.(Cancer,2012) Only a very small population of peoples will try to stop smoking so the elasticity can definitely be said that is inelastic.

Price elasticity of supply defined as how easily, how quickly producers can shift resources between alternative uses.(Connell,2012) The price elasticity of supply of tobacco is supposed to be more elastic. The supply is more sensitive to change in the price of tobacco. Assuming the pattern of demand for tobacco remains unchanged, the more the price rise in the market the producer will be willing to supply more. As a consequence, the rate at which the price of tobacco rises, rate of increase in supply will be more than that. The short run in microeconomic is a period of time too short to change plant capacity but long enough to use the fixed-sized plant more or less intensively. While the long run is a time period long enough for firms to adjust their plant size and for new firms to enter the industry.(Connell,2012) According to the data, the results indicate a short-run elasticity of +0.34 and a long run elasticity of +0.81. This suggest that tobacco farmers are highly unresponsive to price changes and the price elasticity of supply is a long run elasticity.

Works Cited:

Arthur A. Hawkins II  (n.d.). International Smoking Facts. Retrieved 11 20, 2012, from http://www.inforesearchlab.com/internationalsmokingfacts.chtml

The Cancer Council (n.d.). Retrieved 11 20, 2012, from http://www.tobaccoinaustralia.org.au/chapter-13-taxation/13-1-price-elasticity-of-demand-for-tobacco-produc

McConnell, B. (18th edition). Economics. New York: McGraw-Hill Irwin.