Taxation has been the most widely used method to reduce demand of cigarettes by many government to generate taxes, but more recently, taxes are raised to minimize damage to health by smoking. (World Bank Group)
The study of WB has confirmed this illustration thru a conclusion in their report that raising taxes significantly reduces consumption of tobacco. Study has shown that price increase due to taxes has an impact to the youth who are more responsive to prices than older people. Result of study shows also that the low and middle income countries are more responsive to price changes than the high income countries. (World Bank Group). As shown in annex 1, the tax increases imposed in Canada, UK and South Africa have encouraged smokers to reduce smoking consumption
Non price measures used by policy makers are publicized findings of research on the health effects of smoking, warning messages on cigarette labels, counter advertising on media, school anti-smoking campaigns, cigarette promotions and advertising, no smoking on public places, restaurant and workplaces. (World Bank Group)
Elasticity of commodity could either be elastic or inelastic when price changes. Response of consumers to price change is influenced first, by availability of a substitute, when consumer can take time, could wait and look for substitute. Second, when the good is a necessity and market structure is in an oligopoly. (Basic Economics).
The generally accepted principle in elasticity is when the price elasticity of a good is less than 1, the good is price inelastic; and that the change in price will only have a small effect. At this point, there will be more revenue with the increase of taxes. (Farlex Dictionary)
Demand for cigarette is price inelastic because according to a report done by Prabhat, J. et. al, DCPP, that from among 100 studies done in high-income countries, price elasticity is -0.25 to -0.50. This means that “a 10 percent increase in price will reduce