Smoking Case Study

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Register to read the introduction… The tobacco companies had a short run increase in their profits after the restrictions on the advertising and promotion of tobacco products is because they do not have to incur huge expenses on promotion and advertisement. Thus, the cost saved on promotion is the addition to the profits of the companies. Moreover, the companies can save up heaps even when not advertising because tobacco is more of an addiction and person will go up to any extent to get a cigarette which means if a smoker wants a cigarette he will not tend to check price but will just pay up and get his pack. Hence, when the companies had restrictions on tobacco promotions their sales were still the same as they addiction products tend to have and inelastic demand in spite of change in price and they also saved up on the advertising and promotion costs.

Q 7. Identify a purpose for smoking bans (or licences) which is not directly related to the market failure normally discussed in our study texts.
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Market failure is not just because of the externalities but also because of irrational thinking. In economics it is assumed as consumer is rationale but when it comes to addictions the consumer becomes irrational. The main thing which he sees is the product which he is addicted to. If we take smoking as an example, the packs of tobacco products clearly states that it is hazardous to health and is doing no good to a person. But still the smoker buys the pack and enjoys the drag.. In case of smoking consumers are shortsighted as they tend to ignore or do not think about the long term effects of the smoking on their health as well as the people who tend to inhale the smoke indirectly. They are just concerned about the present relaxation the cigarette gives them to cope up with their addiction. They tend to ignore the side effects of

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