Economic Analysis: Alcohol, Tobacco Market Dynamics and Policy Impact

This economic report examines the United States' alcohol and tobacco markets, focusing on beer, wine, and cigarettes. It analyzes the interrelation between these markets, considering beer and cigarettes as complementary goods. The report investigates the impact of health warnings on cigarette packaging, concluding that it can reduce beer demand. It also explores how yeast shortages, crucial for beer production, affect the cigarette market. Furthermore, the study evaluates the Isle of Man's cigarette ban strategy, highlighting its effectiveness in reducing crime rates by leveraging the addictive nature of cigarettes. The analysis provides insights into market dynamics and the effects of public health policies, using figures to support the arguments and concluding with a summary of the key findings.

Running head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction......................................................................................................................................2
Beer, Wine and Cigarette Market....................................................................................................2
Impact of health warnings on cigarette packaging on beer consumption....................................3
Impact of yeast shortage on Cigarette purchase..........................................................................4
Isle of Man cigarette ban.................................................................................................................5
Conclusion.......................................................................................................................................6
References........................................................................................................................................7

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Introduction
In United States drinking and Smoking is causing serious trouble for people. The
statistics of deaths from smoking is even greater than the demand that from alcohol. There is an
inter relation between alcohol consumption and smoking. Beer and cigarette are considered as
complement goods. People prefer to smoke while drinking beer. Therefore, any disturbance in
either of the market affects the other market as well. Finally, the incidence of cigarette ban and
reduction of the crime rate in Isle of Man has been evaluated.
Beer, Wine and Cigarette Market
In market for alcoholic beverages, Beer and Wine are counted as two important names.
Wine is a drink that can be served to a large variety of occasion. United States is recorded as
producing fourth largest volume of alcoholic beverages in the global market. Dominating brands
in the Wine market are Bronco Wine Company, Treasury Wine Estates, the Wine Group E.&J.
Gallo Wine Company, and Constellation Brands. The numbers of Wine retailers are forecasted
to increase by 2020 (statista.com, 2017). Average wine consumption has increased rapidly. Most
buyer in the wine market are influenced by wine color.
Beer is another widely consumed alcoholic beverages. The proportion of alcohol is least
in beer. Breweries are categorized in two groups- micro-breweries and macro-breweries. The
classification is made based on volume of production and size. The share of craft brew
companies are raising continuously (cbsnews.com, 2017). Consumers buying pattern in the beer
market is greatly influenced by outer packaging.

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In the tobacco market Cigarette is the widely consumed items. All groups of people-
teenagers, young adults, and old adults consume cigarette. In the cigarette market, different
brands of cigarettes are available (ibisworld.com, 2017). There are often foreign brand in
increasing competition in the domestic market.
There is a dependency between the consumption of beer and wine and that of cigarette.
Cigarette is consumed together with wine or beer. People have a high tendency of smoking at
times of drinking beer or wine. Hence, increase or decrease in prices of beer and wine affects
Cigarette demand. The cross price elasticity between beer and cigarette is positive. This means a
rise in price of beer leads to a reduced demand for cigarette for those who prefers cigarette at
time of drinking beer. As suggested in the report smoking is more likely to be related with beer
consumption than that of Wine (washingtonpost.com, 2017).
Impact of health warnings on cigarette packaging on beer consumption
Figure 1: effect on beer market for health warnings on cigarette packaging

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(Source: As created by the Author)
There is a complementary relation between the consumption of beer and cigarette. People
smoke more when they drink beer or other alcoholic beverages. In case of complementary goods
demand of the two goods are dependent on each other. Health warnings on cigarette packaging
spread awareness for injurious effect of smoking (Young‐Wolff et al, 2014). As a result, demand
for cigarette might decreases. DD shows the initial demand curve for beer. Those who drink beer
at times of smoking demand beer less with a reduced demand for cigarette. In the beer market,
the demand curve for beer will shift inward direction. The new demand curve is D1D1.
Equilibrium in the beer market shifts from earlier E to e. If this happens, then price in the beer
market will fall from P* to P1 and the quantity demanded will decrease from Q* to Q1. Therefore,
heath warning on cigarette packaging affects beer market through its complementary
consumption relation.
Impact of yeast shortage on Cigarette purchase
Figure 2: Impact of yeast shortage on Cigarette demand
(Source: as created by the Author)

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Yeast is a important ingredient for making alcoholic beverages. Shortage of yeast will
hamper the production of beer and lead to a shortage in the beer market. The shortage of supply
in the beer market leads to a price increase in the beer market and hence a reduced demand for
beer. When demand for beer reduces, the demand for its complementary goods cigarette
decreases (Beard et al, 2017). Demand curve for cigarette shift from D1D1 to D2D2. The
decreased demand for cigarette will lead to a decrease in both price and quantity purchase in the
cigarette market.
Isle of Man cigarette ban
In order to reduce Crime rate in Isle of Man, a new strategy has been adapted. The
strategy is to force the prisoners to give up smoking habit once they entered in the jail. Cigarette
is an addictive item. The demand for addictive items is inelastic in nature. People do not want to
sacrifice their addiction at any cost (van den Berg et al., 2013). The fear of being imprisoned is
not enough for reducing the incidence of crime. Forcing criminals to give up smoking has made
them thinking repeatedly before involving in criminal offenses like fighting, stealing or drug
trading.
It is the only non- smoking prison in Europe. Neither the guards nor the inmates are
allowed for smoking in the premises, even not outside the building (dailymail.co.uk, 2017). With
such a strict regulation, crime rate fell to 14% since opening of the jail. Prisoners coming to the
jail have no other choice but to leave their addiction of cigarette. To help them to cope up with
the situation counseling and nicotine patches are offered. With this, crime rates are declined
largely. People caught for car stealing, number of assaults has recorded a decline. Giving up
smoking is something that they really feared. It is working beyond the fear of punishment.

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Conclusion
The paper analyzes alcohol and tobacco market in United States. Wine, beer and spirits
are three important alcoholic beverages in US market. Consumption and sales of both Wine and
beer is leading to an increase in death occurring from smoking and alcohol consumption. Beer
and cigarette are complementary goods. While there is a health warning on cigarette
consumption then demand for beer is likely to be reduced. Shortage of yeast crates supply
shortage in beer market ad affects the purchase the cigarettes adversely. Strategy of smoking ban
to reduce crime in Isle of Man has appeared as an effective way of reducing crime rates.

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References
Beard, E., West, R., Michie, S., & Brown, J. (2017). Association between smoking and alcohol
‐
related behaviours: A time
‐series analysis of population trends in England. Addiction.
Cigarette & Tobacco Manufacturing in the US Market Research | IBISWorld.
(2017). Ibisworld.com. Retrieved 14 September 2017, from
https://www.ibisworld.com/industry-trends/market-research-reports/manufacturing/
beverage-tobacco-product/cigarette-tobacco-manufacturing.html
Drop in crime on Isle of Man attributed to Europe's only non-smoking prison. (2017). Mail
Online. Retrieved 14 September 2017, from http://www.dailymail.co.uk/news/article-
1239209/Drop-crime-Isle-Man-attributed-Europes-non-smoking-prison.html
Facts, U. (2017). Topic: Wine Market. www.statista.com. Retrieved 14 September 2017, from
https://www.statista.com/topics/1541/wine-market/
U.S. smoking rate does something it hasn't in years. (2017). Cbsnews.com. Retrieved 14
September 2017, from https://www.cbsnews.com/news/us-smoking-rate-does-something-
it-hasnt-in-years/
van den Berg, J. J., Bock, B., Roberts, M. B., Stein, L. A., Friedmann, P. D., Martin, S. A., &
Clarke, J. G. (2013). Cigarette smoking as an expression of independence and freedom
among inmates in a tobacco-free prison in the United States. nicotine & tobacco
research, 16(2), 238-242.

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Want people to drink less? Make their cigarettes more expensive. (2017). Washington Post.
Retrieved 14 September 2017, from
https://www.washingtonpost.com/news/wonk/wp/2014/10/27/want-people-to-drink-less-
make-their-cigarettes-more-expensive/?utm_term=.6a90eaa33261
Young‐Wolff, K. C., Kasza, K. A., Hyland, A. J., & McKee, S. A. (2014). Increased cigarette tax
is associated with reductions in alcohol consumption in a longitudinal US
sample. Alcoholism: Clinical and Experimental Research, 38(1), 241-248.