Unit 1: Market Failure & Cigarettes

Australia has become the first state to order tobacco companies to remove logos from packaging and to sell cigarettes in unbranded packs festooned with health warnings and graphic images. The images could make smokers more aware of the private and public costs of their habit.

The Australian Federal Government claimed that removing branding and advertising would deter the young from buying cigarettes. Stocks of cigarette packs which did not comply with the new law, were being heavily
discounted or destroyed. Although tobacco firms are banned from sports sponsorship, and newspaper advertising, the Australian Government isn't able to police on-line advertising aimed at the under 25s on social media sites based outside the country. It remains to be seen whether there will be a challenge to the new law under World Trade Organisation rules.



You could also think about the microeconomics to this issue: if all packets are identical what might we infer about the PED for branded cigarettes.

Yes, given a range of substitutes they are already highly elastic, but might this make them even more elastic?