Supply and Demand for Tobacco

A) I have chosen cigarettes to be my market transaction as it is has a very large and wide market. A cigarette is a product consumed through smoking and manufactured out of cured and finely cut tobacco leaves and reconstituted tobacco, often combined with other additivesl, Cigarettes is produced to satisfy the growing population of smokers. Smokers are hooked to a substance called nicotine that is in a cigarette along with other harmful substances. Cigarette is a great product to be selling for the firm.

As the customers(smokers) are addicted to nicotine , these firms can rely on them for continuous demand and they can easily increase supply. Therefore, the firms can easily monopoly the market and fix their own price. One of the reasons for a firm to enter the market of producing cigarettes would be the profit. These giant tobacco companies makes billion yearly profit after tax. 0However, these firm has to build their reputation through quality. They have to spend millions in advertisement, to make their brand of cigarette the ‘cool’ choice.

The usual reason of customers securing this product is because they have no other choice, once you get hooked on it, you have to keep supplying your body with nicotine. At this moment the firm has secured another life-long customer. B) A shift in the cigarette demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase cigarettes changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand.

A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held constant. A change in price leads to a movement along the demand curve and is referred to as a change in quantity demanded. Income What would happen to the demand for cigarettes if unemployment increases? Most likely, it would fall because of lower incomes. Lower incomes mean that people have less to spend in total, so they are likely to spend less on some – and probably most – goods.

If the demand for a good falls when income falls, the good is called a normal good. Not all goods are normal goods. If the demand for a good rises when income falls, the good is called an inferior good. An example of an inferior good might be bus rides. As income falls, people are less likely to buy a car or take a taxi and more likely to take the bus. As income falls, therefore, demand for bus rides tends to increase. Tastes The most obvious determinant of demand are tastes and fashions. If people like cigarettes, they buy more of it.

Economists are increasingly interested in explaining people’s tastes. Expectations People’s expectations about the future may affect their demand for a good or service today. For example, if people expect to earn a higher income next month, they may be more willing to spend some of their current savings buying cigarettes. As another example, if people expect 2 http://www. bized. co. uk/notes/2012/02/shifts-versus- Income xample, if people expect the price of cigarettes to fall tomorrow, they may be less willing to buy an cigarettes at todays price. The Size and Structure of the Population A larger population, other things being equal, will mean a higher demand for cigarettes. Changes in the way the population is structured also influences demand. Many Eastern countries have a growing population and this leads to a change in the demand as there are more young adults in China (for example). Thus demand of cigarettes might increase Summary The demand curve shows what happens to the quantity demanded of a good when ts price varies, holding constant all the other variables that influence buyers.

When one or more of these other variables changes, the demand curve shifts leading to an increase or decrease in demand. The table below lists all the variables that influence how much consumers choose to buy cigarettes. 4 An example of demand curve shifting. The shift means an increase in demand with consequences for the other variable. Table 4. 1 . Variables that Influence Smoker To purchase Cigarettes. V ariable A change in this variable… Price Shifts the demand curve Price of related goods Expectations Number of buyers

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