Economic Analysis: Cigarette Smoking, Beer Consumption, and Regulation

This report examines the economic relationship between cigarette smoking and beer consumption, focusing on their interplay as complementary goods. It explores how health warnings on cigarette packaging impact beer demand, illustrating the shift in demand curves. The analysis considers the effects of supply shortages (e.g., yeast for beer) on both beer and cigarette consumption, highlighting the concept of price elasticity. Furthermore, the report discusses the addictive nature of cigarettes and the inelastic demand, suggesting that even price increases may not significantly reduce consumption due to addiction. The conclusion indicates that an increase in cigarette prices would lead to a reduction in both cigarette and beer consumption due to their complementary nature. The report uses economic principles to analyze consumer behavior and the effects of government regulations on these products.

Running Head: Alcohol and Cigarettes Regulation
The Negative Impacts of Cigarette Smoking and Beer Consumption
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Alcohol and Cigarettes Regulation 2
The Negative Impacts of Cigarette Smoking and Beer Consumption
Introduction
Beer consumption and cigarettes smoking are some of the factors that are responsible for
many deaths in the world every year. Beer consumers have resulted in many accidents that has
taken the life of many innocent individuals. The smoking of cigarettes has resulted in many
health issues such as cancers and has resulted in many deaths as well. Cigarettes are less
expensive than beer and thus are more likely to be abused. There are more deaths that results
from cigarettes consumption in comparison to beer consumption. There is a need for the
government to raise the social welfare of the citizens by ensuring that it saves as many lives as
possible. Saving of these life means discouraging their consumption; it is only achievable
through making these products more expensive. This paper will determine their relationship and
confirm whether the argument posed by the Washington University that discouraging cigarette
could reduce beer consumption is true.
Question Part 1
The beer and wine markets are faced by reduced regulations compared to the cigarette
markets. The number of alcohol consumers are lesser than those for cigarette consumers; this
explains why there are more cigarette-related deaths compared to alcohol-related deaths. Beer
and cigarettes have a complementarity in consumption (Moore, 2010); wines and cigarettes have
no close relationship. It is with a high possibility to get a person who is taking beer to be
smoking as well. People who are dependent on wine consumption belong to a higher class of life
and thus they choose better living standards and thus it’s difficult for them to indulge in
unhealthy behaviors such as cigarettes smoking (Ingraham, 2014). However, for the case of beer
and cigarettes smoking the two goods are complements, thus, an increase in cigarettes tax to
discourage its consumption also discourages the consumption of beer but at a lesser proportion
that the reduction in cigarette smoking. Some people are not satisfied with just the consumption
of beer alone; they feel much better when they complement the beer with other substances as
well (Moore, 2010); cigarette is the major choice of complement for beer consumption.

Alcohol and Cigarettes Regulation 3
Question Part 2i
Fig: The shift in demand for complementary goods
Price of
Cigarettes
P*
D1 D*
0 Q1 Q*
Quantity of Beer
Assuming that initially the demand for beer was equal to Q* and the price was P*, initial
demand D*, the introduction of health warning on the cigarettes packaging will have the
following impact on beer demand. The warning will make the cigarettes consumers to be more
cautious and thus their demand for cigarettes will fall at every price level (White, Williams,
Faulkner & Wakefield, 2014). Since the change in the cigarettes demand results from a change in
preference rather than price, the initial demand curve D* shifts leftwards to D1. There is a shift
in demand curve for all non-price demand influencers (Chand, 2016). The quantity of beer
demanded falls from Q* to Q1 as observed above. Thus the impact of health warning on
cigarettes is to reduce the consumption of beer (Wigg & Stafford, 2016).

Alcohol and Cigarettes Regulation 4
Question Part 2ii
Fig: The shift in demand for complementary goods
Price for
Beer S1
S*
P1
P*
D
0 Q1 Q*
Quantity of Cigarettes
The initial cigarettes demand was Q* when the price of beer was P*. The shortage of
yeast will cause a reduction in the amount of beer produced since yeast is an input for beer
production; supply shifts from S* to S1. When supply is low, the selling price rises (Ritenour,
2010). The new beer price will be P1 and will make beer less attractive. Since beer and cigarettes
are complementary goods, the demand for cigarettes will also fall.
Question Part 3
There is a great addiction on cigarettes such that it is difficult for a smoker to spend a day
without smoking a few cigarettes. Addictive smokers may prefer cigarettes over food or drinks.
The cravings that they have for cigarettes cannot be satisfied by anything else apart from
cigarettes. Non cigarette smokers may not be impacted by the presence of such a jail because
their normal states will still be maintained at the initial position. New jailers are given only one
choice when they arrive in this jail; they have to keep of the cigarettes.
According to Dailymail.co.uk (2009), there has been a decline in all kind on crimes since
most criminals are cigarette smokers and are frightened to face the tough consequences. Most
people who avoid crimes are not fearing the presence of the non-smoking jail, what they fear is
the smoking ban. This fear of smoking ban and the sub-sequential decline in crime rate explains

Alcohol and Cigarettes Regulation 5
the inelastic nature of cigarette demand to the changes in its prices. Even if price was raised to
high levels, smokers will always smoke nearly the same quantity smoked before the prices went
up. There will be a small decline in cigarette demand after the tax causing the prices to hike.
packaging.
Conclusion
If alcohol and cigarettes are complement goods, then an increase in the cigarette prices
will not result in an increment in alcohol consumption but rather a reduction. Beer and cigarettes
are inelastic to price changes and thus no matter the price charged, there is still a greater demand
by the consumers. This is because these products cause addiction to the users. Their inelastic
nature is an advantage to the government as it can be able to raise higher revenues as it saves
many lives.

Alcohol and Cigarettes Regulation 6
References
Chand, S. (2016). Effect of Demand Curve on Substitute Goods and Complementary Goods.
YourArticleLibrary.com. Retrieved 11 September 2017, from
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goods-and-complementary-goods-micro-economics/8914/.
Dailymail.co.uk. (2009). Drop in crime on Isle of Man attributed to Europe's only non-smoking
prison. Mail Online. Retrieved 11 September 2017, from
http://www.dailymail.co.uk/news/article-1239209/Drop-crime-Isle-Man-attributed-
Europes-non-smoking-prison.html.
Ingraham, C. (2014). Want people to drink less? Make their cigarettes more expensive.
Washington Post. Retrieved 11 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=.a22995e37523.
Moore, S. (2010). Substitution and Complementarity in the Face of Alcohol-Specific Policy
Interventions. Oup.com. Retrieved 11 September 2017, from
https://academic.oup.com/alcalc/article/45/5/403/184976.
Ritenour, S. (2010). Foundations of economics: A Christian view. Eugene, Or: Wipf & Stock.
White, V., Williams, T., Faulkner, A., & Wakefield, M. (2014). Do larger graphic health
warnings on standardized cigarette packs increase adolescents’ cognitive processing of
consumer health information and beliefs about smoking-related harms? Bmj.com.
Retrieved 11 September 2017, from
http://tobaccocontrol.bmj.com/content/24/Suppl_2/ii50.
Wigg, S., & Stafford, L. (2016). Health Warnings on Alcoholic Beverages: Perceptions of the
Health Risks and Intentions towards Alcohol Consumption. Ncbi.nlm.nih.gov. Retrieved
11 September 2017, from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4841515/.