The Independence of Cigarettes and Liquor Demand

To understand the joint consumption behavior of cigarette and liquor, various studies were conducted to test the demand consume by the same individual. Based on the results of these studies, it is easier to formulate taxation on the two goods as joint decision to maximize tax revenue. While suggestions of raising taxes on cigarette and liquor would lead to reduction in reduction in consumption, analysis found that two goods are substitutes in consumption.

It is difficult to conclude the result of the research for the reason that the subjects of the studies were incomplete. The assumption of the two goods are substitutes in consumption is too prematurely defined. The analysis had left out a number concerning factors such as the remaining States, cultural differences, income, gender, age, education, taste preference and weather. Every States in the US is different in geographically. It is possible for individuals in the states with the lowest price cost of cigarette and liquor to consume both commodities as complement. For instance, according to a recent statistic, the lowest price of a pack of cigarette in Virginia is only $5.25 where the state of New York is $12.85. The low cost of cigarette allows individuals of Virginia to enjoy both cigarette and liquor. Majorly diverse states such as California would significantly skewed the observation for the reason that it is one of the immigrant states and it is one of the closest states to be near the entertainment capital state of Nevada. Based on the recent statistic of the cost of cigarette in California, the difference to the lowest price cost in Virginia is only $.64 cents ($5.89 per pack). Being an entertainment state and closest to the city of Las Vegas, demand in both commodities is unquestionably inelastic. Cigarettes and liquor can almost always be found where nightclubs are around. Therefore, cigarettes and liquor cannot be concluded as substitutes in consumption.

The article concluded that cigarette