Price elasticity of demand for cigarettes : The Case of Sweden

Abstract:

Due to health problems and the negative externalities associated with cigarette

consumption, many governments try to discourage cigarette consumption by increasing its

price through taxation. However, cigarette, like the other addictive goods, is viewed as that it

is not sensitive to demand rules and the market forces. This study analyses the effect of price

increase on cigarette consumption. We used Swedish time series data from 1970 to 2010.

Our results reveal that though cigarette is addictive substance its demand is sensitive

to changes in the price. Estimates from this study indicate short-run price-elasticity of -0.29

and the long run price elasticity of -0.47.