CIGARETTES: Supply & Demand and a Little History
Explain and graph the effects on cigarette demand of the items listed below.
1. Marketing strategies by tobacco companies that portray cigarette smoking as glamorous.
2. Findings that cigarettes are hazardous to the health of smokers.
The U.S. Surgeon General’s report that stated that heavy smoking was the principal cause of
lung cancer was issued in 1964. The first medical researcher to publish a paper linking tobacco
with cancer dates back to 1761.
3. Peer pressure on adolescents to smoke because it’s the “cool” thing to do.
4. Findings that environmental tobacco smoke (ETS or passive smoke) has adverse health effects.
In 1984, the U.S. Surgeon General’s report indicated an association between ETS and increased
prevalence of respiratory illness. In 1992, the Environmental Protection Agency reported that
ETS was a cause of increased prevalence of respiratory illness. Later research has found that
ETS is associated with coronary heart disease and childhood cancer.
5. Smoking bans on airline flights.
In 1990, smoking was banned on U.S. domestic flights, and in 2000, smoking was banned on
flights between the U.S. and other countries.
6. High taxes on cigarettes.
2010 data: The U.S. federal excise tax on cigarettes is $1.01 per pack. State excise taxes vary
from $0.17 per pack in Missouri to $4.35 in New York. Some examples of the taxes for a few
states in our area are: DE: $1.60, PA: $1.60, MD: $2.00, NJ: $2.70 cents. (Some counties and
cities impose additional taxes on cigarettes.)
7. Advertisements aimed at convincing young people that cigarette smoking is an “uncool” habit.
8. Availability of aids to stop smoking (prescription and over-the-counter).
The nicotine patch, Nicoderm, was first introduced as a prescription product in 1991. In 1996,
the U.S. Food and Drug Administration approved Nicoderm for over-the-counter sale as an aid
to stop smoking.
9. U.S. laws prohibiting sales of cigarettes to minors.
In 1997, cigarette sales to persons under 18 were outlawed. (Related to that law was the ban on
cigarette vending machines.)
What if Tobacco was Illegal?
Suppose a law were passed making the sale and possession of tobacco illegal in the United States.
It is unlikely that cigarette smoking would be eliminated entirely, because a black market for
cigarettes would probably develop.
1. Discuss briefly the costs (monetary and non-monetary) of buying and smoking cigarettes under
such a law.
2. What additional costs would cigarette producers incur under such a law?
3. Discuss and graph the impact of the law on the supply and demand curves for cigarettes.
4. What would happen to the equilibrium price of cigarettes?
5. What would happen to the equilibrium quantity of cigarettes?
6. Clearly the buying and selling of cigarettes would be criminal acts under such a law. What
secondary effects on crime might the law have?