Elasticity of Demand: Elasticity of Cigarettes in Alexandria
The article discusses the impact of the increase of cigarette prices in Alexandria. It discusses how people react to the increase and see how much more of an increase in price consumers is willing to accept before the stop buying the cigarettes.
Elasticity is a measure of how sensitive one variable is to another. In particular, it measures how sensitive the quantity of a good that people demand is to the price of the good. So if price where to increase, would these encourage consumers to buy less? If so then the product would have a certain measurement of elasticity.
"Alexandria officials hope most smokers will respond o the increase like Miss Salgado did - complain but not leave the city limits to save 20 cents." This shows that now there has been an increase on price of cigarettes, demand is expected to be the same showing that it is quite elastic.
But some consumers state that there is a limit to how much they will play for a pack of cigarettes, "But with a pack costing about $4, she said yesterday her smoking days could soon be over if prices hit $5." This clearly shows that cigarettes in Alexandria are not close to be perfectly elastic.
In some cases, income elasticity of demand can be related. Miss Salgado briefly states that the average income in the city of Alexandria s quite low, so prices can not be too high, as they cannot offered rather than just choosing not to buy as they are just an over priced product.
In some cases, if prices were to be too high, consumers would turn to a substitute. In the case of increase in price of cigarettes, there are not many alternatives, except...