Effects of Taxation on Cigarette Smoking

In: Business and Management

Submitted By legalseeker
Words 893
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Effects of Taxation on Cigarette Smoking
In economics the demand elasticity refers to the sensitivity of the quantity demand for a product to the changes in price. This relationship correlates to the basic law of demand which states that if the price of a product or good increase, then the consumer demand would fall and decrease because of the change. However not all products follow this fundamental theory. In fact products that are considered addictive substances, such as tobacco and cigarettes can be the exception to this basic law because we must take into account not just the pricing but other factors such as time, usage, limitations, and restrictions.

Imposing higher taxes on cigarettes will have a mix effect as to who the price increase affects. As noted in the Chaloupka article, “The effects of prices and tobacco”, paying higher taxes on cigarettes as well as placing stronger controls as to who is able to purchase them will lead to a reduction in the consumption of cigarette smoking. The article is supported by studies done in the early eighties and late ninnies, confirming the reduction is towards both adults and youths alike. However price sensitivity is significant in its responsiveness between youths and young adults than compared to adults; up to three times more sensitive.

Some reasons as to why this may be, is due to the strict regulations and laws set by states and local governments that enforce and control the purchase of tobacco products to the consumer. These would be age restriction (18 years or older) and income. Youths and young adults usually do not have the income to support an addicting habit. Adults who have a source of income to purchase tobacco can determine at what cost buying cigarettes would still be desirable and needed without hurting their pocket books. It is also important to note price and income will affect the…...

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