Commentary about "Close, and It is a Cigar" This article from The Wall Street Journal by David Kesmodel talks about this newfound loophole that cigar and cigarette companies are starting to take advantage of. That possibly could change the whole aim for the cigarette industry. The issue is that last year “congress sharply increased the federal excise tax on "little" cigars—“filtered, often sweetly favored products that are similar in size and shape to cigarettes”(Kesmodel). Lately many manufacturers responded to this tax by increasing the weight of their little cigars so they fall under the category of regular or “big” cigars, which are taxed at a lower rate creating a sales tax (a consumption tax charged at the point of purchase for certain goods and services) based on the mass of the cigars. As more and more Cigar companies are starting to take hold of this tax loop the hole, the more companies are producing "little cigars". On the supply and demand graph this would cause the supply to shift out and as well as the demand to shit outward as well, because of the reasonable price of the little cigars compared to that of the cigarette.
Price and Quantity of little cigars
Supply_of_Legs.JPG
This strategy by the cigar companies creates many unintended consequences (outcomes that are not the outcomes intended by a particular action). For example, since these mini cigars now, considered by the tax issued to them as cigars, are now so cheap and the fact that the cigars are flavored gives many minors the incentive to buy them. This also gives the indication that the due to the little cigars, cigarettes are now elastic because little cigars are a cheaper, complementary good to cigarettes. “In the 14 months since the excise-tax increase, sales volumes of cigars classified as large more than quadrupled to 12.3 billion units, according the federal Alcohol and Tobacco Tax and Trade Bureau. Sales of products listed as "little" cigars fell by 79%”. This statistic alone proves that not only were these little cigars in high demand (demand is the desire to own anything and the ability to pay for it and willingness to pay) the supply (amount of something by a business or firm) is there to meet demand due to the fact, that many manufacturers are increasing production of these hot ticket items. Storeowner Andrew Beaupre said, "Those blow off the shelves," Customers pay as little as $1.27 a pack of 20 filtered cigars, he said. The lowest-priced cigarette brand the store sells is about $3.75 a pack. This increased demand alone is started to decrease the demand for cigarettes. The objective of the tax by the FDA was to decrease to demand of the little cigars however, it has erupted more competition among the smoking industry. One course of action that arises (since these cigars are flavored) is that, the FDA is trying to brand these little cigars now considered big cigars as flavored cigarettes because “The FDA last year banned sales of cigarettes that include flavors other than menthol, and said its ban could encompass products labeled as cigars if they meet its definition of a cigarette”. (Kesmodel). Another course of action that should be taken in is simply increase the tax on all products, so that the tax can hurt this industry even more so that these new little cigars don’t give minors the incentive to start smoking at an older age. If minor start smoking then mostly likely they will feed the giant that is the smoking industry, because of the negative externality (addiction) to these products.
Accomplishing this, the FDA would decrease the demand for these products in the long run, because in the short run people will still be hooked to these products. However eventually a substitute will be found because demand will eventually decrease because of the price. In the long run as well, the FDA should press for increase regulation toward the smoking industry so loop hole like this one are so not easily found.
COMMENTARY COVERSHEET Economics commentary number: HL Number 1 Title of extract: “Close, and It Is a Cigar”_ Source of extract: The Wallstreet Journal Date of extract:09/23/10 Word Count:_672_words Date the commentary was written:_27/09/10 Sections of the syllabus to which the commentary relates:_Sections 2.1, 2.2, 6.1,7.1_ Candidate name: _Jesse Stuckwisch Candidate number: _
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Commentary about "Close, and It is a Cigar"
This article from The Wall Street Journal by David Kesmodel talks about this newfound loophole that cigar and cigarette companies are starting to take advantage of. That possibly could change the whole aim for the cigarette industry. The issue is that last year “congress sharply increased the federal excise tax on "little" cigars—“filtered, often sweetly favored products that are similar in size and shape to cigarettes”(Kesmodel). Lately many manufacturers responded to this tax by increasing the weight of their little cigars so they fall under the category of regular or “big” cigars, which are taxed at a lower rate creating a sales tax (a consumption tax charged at the point of purchase for certain goods and services) based on the mass of the cigars.
As more and more Cigar companies are starting to take hold of this tax loop the hole, the more companies are producing "little cigars". On the supply and demand graph this would cause the supply to shift out and as well as the demand to shit outward as well, because of the reasonable price of the little cigars compared to that of the cigarette.
Price and Quantity of little cigars
This strategy by the cigar companies creates many unintended consequences (outcomes that are not the outcomes intended by a particular action). For example, since these mini cigars now, considered by the tax issued to them as cigars, are now so cheap and the fact that the cigars are flavored gives many minors the incentive to buy them. This also gives the indication that the due to the little cigars, cigarettes are now elastic because little cigars are a cheaper, complementary good to cigarettes. “In the 14 months since the excise-tax increase, sales volumes of cigars classified as large more than quadrupled to 12.3 billion units, according the federal Alcohol and Tobacco Tax and Trade Bureau. Sales of products listed as "little" cigars fell by 79%”. This statistic alone proves that not only were these little cigars in high demand (demand is the desire to own anything and the ability to pay for it and willingness to pay) the supply (amount of something by a business or firm) is there to meet demand due to the fact, that many manufacturers are increasing production of these hot ticket items. Storeowner Andrew Beaupre said, "Those blow off the shelves," Customers pay as little as $1.27 a pack of 20 filtered cigars, he said. The lowest-priced cigarette brand the store sells is about $3.75 a pack. This increased demand alone is started to decrease the demand for cigarettes. The objective of the tax by the FDA was to decrease to demand of the little cigars however, it has erupted more competition among the smoking industry. One course of action that arises (since these cigars are flavored) is that, the FDA is trying to brand these little cigars now considered big cigars as flavored cigarettes because “The FDA last year banned sales of cigarettes that include flavors other than menthol, and said its ban could encompass products labeled as cigars if they meet its definition of a cigarette”. (Kesmodel). Another course of action that should be taken in is simply increase the tax on all products, so that the tax can hurt this industry even more so that these new little cigars don’t give minors the incentive to start smoking at an older age. If minor start smoking then mostly likely they will feed the giant that is the smoking industry, because of the negative externality (addiction) to these products.
Accomplishing this, the FDA would decrease the demand for these products in the long run, because in the short run people will still be hooked to these products. However eventually a substitute will be found because demand will eventually decrease because of the price. In the long run as well, the FDA should press for increase regulation toward the smoking industry so loop hole like this one are so not easily found.
COMMENTARY COVERSHEET
Economics commentary number: HL Number 1
Title of extract: “Close, and It Is a Cigar”_
Source of extract: The Wallstreet Journal
Date of extract:09/23/10
Word Count:_672_words
Date the commentary was written:_27/09/10
Sections of the syllabus to which the commentary relates:_Sections 2.1, 2.2, 6.1,7.1_
Candidate name: _Jesse Stuckwisch
Candidate number: _