Elasticity of Demand for Tobacco and Starbucks Coffee

Running head: ECONOMICS
Economics
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ECONOMICS
Answer 1
Article - https://www.tobaccoinaustralia.org.au/13-1-price-elasticity-of-demand-for-tobacco-
product
The article states about the elasticity of demand for tobacco products. In case of the
tobacco products, the elasticity of price is always less than 1. Therefore, the price elasticity of
tobacco products is known to be inelastic in nature. The demand for tobacco products is
usually not much elastic in nature compared to the demand of other consumer products.
According to a research it have been found out that increase in the price of the tobacco
products will only lead to moderate fall in the demand of tobacco products. In order to
reduce the consumption of tobacco products, the government have introduced tax on the
tobacco products. However, the introduction of tax will not lead to much change in the
consumption of tobacco products. The extent to which demand for the tobacco products will
be responding to the price change is quite doubtful. The recent research has stated that the
prices of cigarettes is known to influence various stages of uptake of cigarette. The inelastic
demand takes place when people are known to buy same quantity of products whether the
price drops or rises. Since smoking is a hard habit to kick, the demand for cigarettes is
known to be highly inelastic in nature which means a large change in the price will only lead
to small change in the quantity demanded.
Only large price increase which can be attained with the imposition of tax, can shrink
the demand since the demand is known to be inelastic in nature with the change in price.
When the tax is imposed, the burden of tax will be falling on the consumers or the producers
who cannot move to substitute product for avoiding the tax (13.1 Price elasticity of demand
for tobacco products - Tobacco In Australia., 2019). For reducing the consumption of tobacco
products, the government have introduced tax on the tobacco products. However, the

ECONOMICS
introduction of tax will not lead to much change in the consumption of tobacco products.
The extent to which demand for the tobacco products will be responding to the price change
is quite doubtful. The recent research has stated that the prices of cigarettes is known to
influence various stages of uptake of cigarette
Article - https://econlife.com/2018/06/prices-at-starbucks/
The second article is about the elasticity of demand of the Starbucks coffee. Starbucks
is known to have elastic demand as there re presence of lot of substitutes of Starbucks coffee.
when the price swings lot, it will be having a huge impact on buying and therefore it will be
elastic is nature. The elastic demand states that, when the price drops, people will be
demanding more Starbucks coffee and on the other hand, when the price will be rising, the
demand will decline. Starbucks already have competitors in the industry which are Dunkin
Donuts and McDonald’s. The price elasticity of demand is known to measure the extent at
which the quantity of demand of goods changes whenever the price of the commodities
change. Is in case Starbucks is known to increase the price of a latte, its competitors Mc
Donald’s, Krispy Kreme and Pan era Bread will be decreasing their prices in order to
compete. When the price will be rising, the quantity demanded will decrease along with the
demand curve (Schwartz, 2019). Therefore, the demand for Starbucks coffee will be
decreasing when price will grow because of the huge market of competitor. Starbucks is also
measured on luxurious good in terms of both high quality and high price. Necessity tends to
have inelastic demand and is unresponsive to the price change. On the other hand, the
luxuries tend to have more elastic demand and therefore demand is more responsive to the
change in price. The coffee of Starbucks therefore known to have elastic demand. The elastic
demand takes place when it will be having a bigger effect on the quantity which the