When the prices increase people would consume less of that product. This is however not true in case of products which are addictive in nature. Even through the prices increase the quantity of the products consumed would not decrease. Thus the price elasticity of demand for the products would be zero. The economics of the plain packaging has been explained with the help of the following graphs. The demand for cigarettes would be an inelastic demand curve (Tucker, 2010, p. This is because even though the prices of the cigarettes change the demand would remain more or less constant this is because people generally get addicted to tobacco and they cannot control the amount that they consume even on the increase of the price (Baumol and Blinder, 2009, p.
That means the smokers are insensitive to price changes. In the left panel of the graph the demand and supply curves have been drawn. Now on the introduction of the plain packaging of the cigarettes the product will lose its appeal to the prospective smokers. As a result the smokers would be demanding less amount of cigarette.
Therefore there would be a shift in the demand curve for cigarettes. In other words the number of smokers would reduce. However, the demand curve would remain inelastic because this reduction in demand would not be as result of the change in the prices but the reduction in the level of desire of the consumers to smoke. The demand for this product would remain restricted to those people who are addicted to smoking. Thus even if the supply curve for the cigarettes is shifted there will be hardly any effect on the quantity demanded of the product (Frank, 2010, p.
The price will only increase or decrease without having any radical effect on the tobacco consumption of the smokers. This has been shown with the help of the following figure. On the reduction in the supply of the cigarettes the supply curve shifts to the left. There is very little change in the quantity of demand because of this. The demand curve remains in elastic. Thus the price is seen to move up which has no effect on the demand
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