Price Elasticity of demand of Marlboro
The price elasticity of demand represents change in the quantity demanded as a result of 1% change in the price (Sivagnanam, and Srinivasan). The price elasticity of demand of Marlboro Cigarettes in the United Kingdom is analyzed from 2009-2014.
Price of Marlboro Cigarette in UK from 2009-2014
(Source: Tobacco Manufacturer Association)
The table shows the retail price of a typical cigarette pack with 20 cigarettes and the tax imposed on each pack every year that increased price. The magnitude of change is, -0.40% from 2009-2014. In the United Kingdom, the price elasticity of demand of cigarettes ranges from -0.25 to -0.50 (Jamison, Breman, and et al.).
The demand of cigarettes is inelastic (Gallet, and List). If the consumers find that the price increase is too high due to increase in tax, they lower their consumption in the short run and continue to fulfill their addiction with the substitutes available (Barnett, Keeler, and Hu). So, there is no significant change in the magnitude of the consumer budget.
The consumers respond quickly to the price changes by switching to the substitutes. In five years from 2009-2014, the price of Marlboro continues to increase, so, people got enough time, and they have switched their taste and demand to the close substitutes available in the market at lower price.
References
Barnett, Paul G., Theodore E. Keeler, and Teh-wei Hu. "Oligopoly structure and the incidence of cigarette excise taxes." Journal of Public Economics . 57.3 (1995): 457-470. Print.
Gallet, Craig A, and John A. List. "Cigarette demand: a meta-analysis of elasticities." Health Economics. 12.10 (2003): 821-835. Print.
Jamison, Dean T., Joel G. Breman, et al. Disease Control Priorities in Developing Countries. New York: World Bank Publications and Oxford University Press, 2006. Print.
McNeil, A, R Bedi , et al. "Levels of toxins in oral tobacco products in the UK." Tobacco Control. 15.1 (2006): 64-67. Print.
Sivagnanam, K. Jothi, and R Srinivasan. Business Economics. New Delhi: Tata McGraw-Hill, 2010. Print.
