Competition and Industry

Competition and Industry

Carefully read the article “Tax, price and cigarette smoking: evidence from the
tobacco documents and implications for tobacco company marketing strategies”, by
F J Chaloupka, K M Cummings, CP Morley and JK Horan as published in Tobacco Control,
(2002) (hereafter referred to as Chaloupka et. al. (2002)) as it will be required to answer all
the questions.
The other articles in the folder will also be helpful for answering some of the questions.
In addition, you should also read the application “Quitting Smoking” on page 137 of the
textbook.
There are six questions together worth 59 points. In addition 6 points are allocated for quality
of written prose so that the assignment is worth 65 points in total. The overall Word Limit is
Approx. maximum of 1500 Words. For questions requiring writing and explanations,
individual word limits are advised below.
The assignment carries 20% weight for the unit. As an example, if you get 30 points on the
assignment, that amounts to 30/65*20 = 9.2 marks for the unit.
Since this is a marked individual assessment, it will be treated like a “take-home” exam.
Hence the assignment discussion on CloudDeakin will largely be of “self-help” nature where
students can post and reply to queries. Academic staff will in general refrain from replying to
queries. Students will need to use their own judgement in taking cues on how to answer the
assignment from this discussion.
Question 1
? Which measure is particularly relevant in assessing the impact of raising cigarette
taxes on the consumption of cigarettes? (1 point)
? Provide some estimates of this measure while clearly citing the source. (1 point)
? Briefly mention two factors that can affect its size. (2 points)
? Assuming an adult smoker allocates income between smoking cigarettes and other
goods, what would be your guess about the slope of the price-consumption curve for
cigarettes?

Question 2

? Assume that all smokers allocate income between smoking cigarettes and “other”
goods and consider both of them as normal goods. Using a diagrammatical analysis,
explain why a young smoker’s adjustment to a price increase in cigarettes differs from
that of an adult smoker.
Diagram: 10 points; Explanation (including explaining the diagram): 20 points
(Approx Word Limit: 400)
[Hint: This question involves identifying and applying relevant concepts from Topic 1 to the
relevant material in Chaloupka et. al (2002).]

Question 3
? Apart from considering the impact on cigarette prices, what other factors would a
policy maker have to keep in mind to predict the likely impact of a cigarette-tax hike
on the consumption of cigarettes by the youth? (Approx.Word limit: 200)

Question 4 (

? Discuss the potential benefits and costs of increasing cigarette taxes. (Approx.Word
limit: 500)

Question 5

? How much importance do tobacco companies attach to economic analysis and
concepts in shaping their strategy to counteract the effects of cigarette taxes?
(Approx. Word limit: 100)
Question 6

? Apply your knowledge of topic 2 to conceptualize the impact of the early adoption of
the Bonsack cigarette machine by the American Tobacco Company on its production
conditions, and how this facilitated the company’s rise to the dominant position in the
industry in the late 19th century. (Approx.Word limit: 200)
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