Microeconomics

This document discusses the market dynamics of tobacco and motor vehicles in the field of microeconomics. It explores the concept of elasticity of demand and its impact on pricing and consumption. The document also provides references for further study.

Running head: MICROECONOMICS
Microeconomics
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1MICROECONOMICS
Table of Contents
Product 1: Market of Tobacco.........................................................................................................2
Product 2: Market for motor vehicles..............................................................................................2
References........................................................................................................................................4

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Product 1: Market of Tobacco
Tobacco is an addictive item. People who are addicted to tobacco products cannot easily
leave their habits and continue to consume the product even at a very high price. Since habit of
smoking is very difficult to kick, cigarettes demand is found to be highly inelastic ((Fine 2016).
That means large change in price causes a very small variation in quantity demanded. The habit
if smoking is found in almost every age group (starting from teenagers). Education and social
factors often plays an important role for people who start smoking however for those who
already have the addiction of smoking demand is highly inelastic. Most studies found elasticity
of tobacco products to be less than -0.5 (Jawad et al. 2018). Because of inelastic demand of
tobacco, public policy like imposition of tax to restrict consumption adversely affect the buyers
as they have to bear the greater burden of tax.
Figure 1: Demand curve for tobacco
Product 2: Market for motor vehicles
The case however is different for motor vehicles. These are neither necessary nor
addictive products. Motor vehicles are rather considered to be luxury item. People often purchase
new and expensive model of vehicles as a status symbol. Demand for vehicles therefore can be

3MICROECONOMICS
post ponded easily. When price of vehicles raises, people can easily reduce their demand. In
contrast, when price falls people increases their demand by a larger proportion. Demand of a
particular model of motor vehicle generally faces a high elasticity because of large number of
available substitutes (Hymel and Small 2015). As demand changes by larger proportion than
price, demand for motor vehicles is relatively elastic in nature. In case of goods having a highly
elastic demand like motor vehicles suppliers should decrease price of the good to boost revenue
(Cowell 2018).
Figure 2: Demand curve for motor vehicles

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References
Cowell, Frank. Microeconomics: principles and analysis. Oxford University Press, 2018.
Fine, Ben. "Microeconomics." University of Chicago Press Economics Books (2016).
Hymel, Kent M., and Kenneth A. Small. "The rebound effect for automobile travel: asymmetric
response to price changes and novel features of the 2000s." Energy Economics 49 (2015): 93-
103.
Jawad, Mohammed, John Tayu Lee, Stanton Glantz, and Christopher Millett. "Price elasticity of
demand of non-cigarette tobacco products: a systematic review and meta-analysis." Tobacco
control 27, no. 6 (2018): 689-695.