Determinants of Demand of Cigarettes, Elasticity of Cigarettes.

1. Presentation on Demand of
Cigarettes
Group Members:
Alberto Gurung
Anshaj Shrestha
Bipin Gurung
Dipesh Raj Pandey
Mahotav Ansari
Pravash Dhar Sharma
Sushant Singh Bhandari

2. ACKNOWLEDGEMENT
First of all, we would like to express our gratitude and thanks
to Ace Institute of Management and specially our
Economics teacher, Mr. Roshan Bardewa for providing us
this golden opportunity to speak in front of you all and
give this presentation. Through this presentation, we
were able to improve our presenting skills and convert
our bookish knowledge into practicality. We would also
like to thank all those people who helped us thoroughly
during the course of presentation by sharing their ideas,
thoughts and experiences .

3. What is cigarette?
• A cigarette (from the French for "small cigar”) is a small
cylinder of finely cut tobacco leaves rolled in thin paper
for smoking. The cigarette is ignited at one end and allowed to
smoulder; its smoke is inhaled from the other end, which is
held in or to the mouth and in some cases a cigarette holder
may be used as well. Most modern manufactured cigarettes
are filtered and include reconstituted tobacco and
other additives. The demand for cigarettes is gradually
decreasing in developed countries but increasing in
developing countries like Nepal.

4. EFFECTS OF CIGARETTE SMOKING
• The effects of smoking on human health are serious and in
many cases, deadly. There are approximately 4000 chemicals
in cigarette, hundreds of which are toxic. The ingredients in
cigarettes affect everything from the internal functioning of
organs to the efficiency of the body's immune system. The
effects of cigarette smoking are destructive and widespread.

5. EFFECTS OF CIGARETTE SMOKING
• Toxic ingredients in cigarette smoke travel throughout the
body, causing damage in several different ways.
• Nicotine reaches the brain within 10 seconds after smoke is
inhaled. It has been found in every part of the body and in
breast milk.
• Carbon monoxide binds to hemoglobin in red blood cells,
preventing affected cells from carrying a full load of oxygen.
• Cancer-causing agents (carcinogens) in tobacco smoke
damage important genes that control the growth of cells,
causing them to grow abnormally or to reproduce too rapidly.
• The carcinogen benzo(a)pyrene binds to cells in the airways
and major organs of smokers.

6. EFFECTS OF CIGARETTE SMOKING
• Smoking affects the function of the immune system and may
increase the risk for respiratory and other infections.
• There are several likely ways that cigarette smoke does its
damage. One is oxidative stress that mutates DNA,
promotes atherosclerosis, and leads to chronic lung injury.
Oxidative stress is thought to be the general mechanism
behind the aging process, contributing to the development of
cancer, cardiovascular disease, and COPD(Chronic Obstructive
Pulmonary Disease).
• The body produces antioxidants to help repair damaged cells.
Smokers have lower levels of antioxidants in their blood than
do nonsmokers.
• Smoking is associated with higher levels of chronic
inflammation, another damaging process that may result in
oxidative stress.

7. Definition of 'Law Of Demand'
A microeconomic law that states
that, all other factors being equal,
as the price of a good or service
increases, consumer demand for
the good or service will decrease
and vice versa.

11. IN CASE OF LAW OF DEMAND OF
Cigarettes
• As the price of Cigarettes increase, the quantity demanded for
Cigarettes is not effected vastly and vice-versa. It remains
constant due to various factors like satisfaction , brand
consciousness, peer pressure and other determinants of
demand of cigarette which will be explained later. So cigarette
is an exception to the law of demand.

12. DETERMINANTS OF DEMAND OF
CIGARETTE
1. Price of related goods:
The demand for a commodity and the price of related goods
has two types of relationship:
• If the fall on the price of one good leads to fall in the demand
of another good, those goods are called substitute goods.
For example: Pan, Supari, and Parag
• Whereas if the fall in prices of a commodity leads to the rise
in demand for other commodity, those commodities are
called complementary goods.
For example: Chewing gum, mint and chocolates

13. DETERMINANTS OF DEMAND OF
CIGARETTE
2. Income:
A rise in a person’s income will lead to an increase in demand
of cigarette(shift demand curve to the right), a fall will lead to
a decrease in demand for cigarette.

14. DETERMINANTS OF DEMAND OF
CIGARETTE
3.Taste and preference:
Taste and preference of the consumer changes from time to
time. Taste and preference of consumer changes in the flavor
of cigarette,the demand for cigarette increases whereas when
taste and preference of consumers changes and doesn’t favor
cigarette, the demand for cigarettes decreases.

15. DETERMINANTS OF DEMAND OF
CIGARETTE
4. Advertisement:
It is one of the factor which helps to increase the
consumption of cigarette. Eye catching and exiting
advertisements attract people towards a product.
Advertisement basically attracts teenagers by showing that
they can get satisfaction, luxury, and good name among their
friends by consuming such products which increase the
demand of the product.

16. DETERMINANTS OF DEMAND OF
CIGARETTE
5.Technological progress:
New commodities produced due to technological progress
reduces the demand of other own commodities. When a new
cigarette brand is made from new and improved technology,
the more people will try to consume it due to which the
demand of that particular cigarette increases.

17. DETERMINANTS OF DEMAND OF
CIGARETTE
6.Fashion:
A cigarette in a hand makes someone a real man has started to
become a fashion statement among the teenagers to show
other people and consume cigarette. The perception of people
to maintain their status among peers also affect the demand of
cigarettes.

18. DETERMINANTS OF DEMAND OF
CIGARETTE
7.Change in distribution of income:
When the distribution of income favors the poor people, the
demand of many things increase whereas, when the
distribution of income is concentrated on rich people,
demand for luxury goods will only be high. In this case when
income of poor people increases the demand for cigarette will
drastically increase as rich and poor people both could afford
to buy it easily.

19. DETERMINANTS OF DEMAND OF
CIGARETTE
8.Consumer’s expectation:
If people feel future shortage of commodity or rise in price
the demand of that commodity increases. This factor also
affects the demand of cigarette.

20. DETERMINANTS OF DEMAND OF
CIGARETTE
9.Films and television:
Films and television has total influence on people.
Seeing different scenes on films performed by actors, people
tend to copy them. They can copy the bad habits as well
such as smoking cigarette which may increase the cigarette
demand.

21. DETERMINANTS OF DEMAND OF
CIGARETTE
10. When other different international brands of cigarettes
are imputed from other countries, the total demand for the
local brand decreases.

22. Movement along a demand curve or change in
quantity demanded:
Other things being equal, if the quantity
demanded increases or decreases due to fall or
rise in price of a commodity alone, it is known as
movement along a demand curve or change in
quantity demanded.
Downward movement along the demand curve is
called extension in demand while the upward
movement is called contraction in demand.

23. MOVEMENT IN DEMAND CURVE OF
CIGARETTE
Contraction in
demand
Extension in
DemandA
B
C

24. Shift in demand curve or change in demand:
If more or less quantity of a commodity is demanded at the
same price due to change in factors other than the price of
the commodity concerned(such as change in income, taste, or
prices of other related goods, etc.),it is called shift in demand
curve.
It is shown by upward or downward shift in demand curve.
Rightward shift in the demand curve indicates increase in
demand while the leftward shift indicates decrease in
demand.

25. SHIFT IN DEMAND CURVE OF
CIGARETTE
Q’ Q Q”
b a c

26. ELASTICITY OF CIGARETTE
• Elasticity
Elasticity is simply a way of quantifying cause and effect
relationship. It is defined generally as a numerical measure of
the responsiveness of one economic variable (the dependent
variable) following a change in another influencing variable
(the independent variable), ceteris paribus. Where
relationships are elastic (responsive), a small change in the
cause or the independent variable has a big effect on the
other dependent variable. Where relationships are inelastic ,
large change in the cause or independent variable has limited
effects on the dependent variable.

27. ELASTICITY OF CIGARETTE
• Price Elasticity of demand For Cigarette (PEDc)
• A numerical measure of the responsiveness of demand
for a cigarette following a change in the price of that cigarette
alone is called price elasticity of demand for cigarette .
• PED =%change in quantity demanded of a cigarette/ %change
in price of that cigarette
• = - {(Q1-Q)/Q}/{(P1-P)/P}
• (Negative sign shows that there is an inverse relationship
between price and quantity demanded.)
• Where , Q1= final quantity, Q= initial quantity, P1=final price,
P=initial price.

28. ELASTICITY OF CIGARETTE
TYPES OF PRICE ELASTICITY OF DEMAND
1.Perfectly Elastic Demand (Ep=infinity.)
2.Relatively Elastic Demand (Ep>1.)
3.Unitary Elastic Demand (Ep=1.)
4.Relatively Inelastic Demand (Ep<1)
5.Perfectly Inelastic Demand (Ep=0.)
Among all the price elasticity of demand, price elasticity of
demand for cigarette is based on perfectly inelastic demand
or zero inelastic demand.

29. ELASTICITY OF CIGARETTE
• PERFECTLY INELASTIC DEMAND(Ep=0.)
• If there is no response in the quantity demanded due
to the change in its price, it is said to be perfectly
inelastic demand. It refers to a situation that a change
in price causes no change in quantity demanded. It is a
situation where even substantial changes in price leave
the demand unaffected.
• Similarly, in the case of a cigarette, quantity demanded
for a cigarette remains constant with the change in its
price. In other words, whatever the price is quantity
demanded for cigarette remains same.

30. ELASTICITY OF CIGARETTE
• Income Elasticity Of Demand For A Cigarette (YED)
• Income elasticity of demand for a cigeratte is defined as a
numerical measure of the responsiveness of demand for a
cigarette following a change in income alone .
• YED=%change in quantity demanded for a cigarette/ % change
in income
• =± {(Q1-Q)/Q}/{(Y1-Y)/Y}
• Where , Q1=final quantity, Q=initial quantity,Y1=final income,
Y=initial income.
• (+ve sing represents for normal goods , -ve sign represents for
inferior goods.

31. ELASTICITY OF CIGARETTE
Types Of Income Elasticity Of Demand
• 1.Positive Income Elasticity Of Demand (Ey=+ve)
If the quantity demanded for a product varies positively with
income, income elasticity of demand will be positive.
• 2.Negative Income Elasticity Of Demand (Ey=-ve)
If the quantity demanded for a product varies inversely with
income, income elasticity will be negative.
• 3.Zero Income Elasticity Of Demand (Ey=0)
If there is any response in quantity demanded due to the
change in income, income elasticity will be zero.

32. ELASTICITY OF CIGARETTE
Cigarette is an inferior good because it has negative income
elasticity of demand meaning that demand falls as the income
rises. Typically inferior goods or services exist where superior
goods are available to the consumer. The superior good for
cigarette is cigar, liquor, etc. Cigars are usually bigger and
thicker than cigarettes, last longer when smoked, contain
more tobacco and are more expensive.

33. ELASTICITY OF CIGARETTE
• Cross Elasticity of Demand
• Cross elasticity of demand refers to change in demand for a commodity as a result
of the change in the price of another commodity. It may be defined as the ratio of
proportionate change in the quantity demanded of commodity x to a given
proportionate change in the price of the related commodity y. Thus,
• Cross Elasticity of demand (Exy)
= %change in quantity demanded for X commodity
%change in price of Y commodity
Change in demand for X commodity
= Original demand for X commodity
Change in price of Y commodity
Original price of Y commodity
qx
= qx
py
py
= qx *py
py qx
This type of elasticity is concerned with substitute and complementary goods.

34. ELASTICITY OF CIGARETTE
• Types of Cross Elasticity of Demand(For Cigarettes)
1. Positive Cross Elasticity of Demand(Exy>0):
When a rise in price of one commodity, say y, will raise the
demand for another commodity, the condition is known as
positive cross elasticity. In this case price of commodity y and
demand for commodity x, move in the same direction.
Substitute goods for cigarette are cigar, liquor, wine, etc

35. ELASTICITY OF CIGARETTE
2. Negative cross elasticity of demand(Exy<0):
When a rise in price of one commodity, y will lead to fall in
demand for commodity x, the condition is known as negative
cross elasticity of demand. In this case commodity y and
demand for commodity x move in opposite direction.
Complementary goods for cigarette are tea, recreational
drugs, cigarette lighters, ashtrays, etc.

36. ELASTICITY OF CIGARETTE
3. Zero cross elasticity of demand(Exy=0):
When the demand for x does not respond to the rise and fall
in price of y, the condition is known as zero cross elasticity of
demand.
This concept is applied in independent goods like cigarette
and shoes, cigarette and butter, etc.

37. THANK
YOU!