Now+in+Brooklyn,+Homegrown+Tobacco.+Local,+Rebellious+and+Tax+Free

Source: New York Times, http://www.nytimes.com/2011/02/25/nyregion/25tobacco.html  Date of extract: Feb 27, 2011

Summary: The article talks about how a New Yorker, Audrey Silk, comes up with a new alternative for cigarettes by producing homemade tobacco. With this new alternative, Audrey is able to save thousands of dollars each year; she now only has to spend $240 to produce her own tobacco in comparison to spending $1000 to buy cigarettes from Parliament Lights, a tobacco company which Silk buys from before she started her own plantations. Because of the new substitute, one of the determinants of demand, the demand curve for cigarrettes made by companies such as Parliament Lights shifts to the left and reaches a new equilibrium with the supply curve. As a result, the total revenue of the cigarette companies will reduce and potentially causing a surplus. The article also gives insight about the law of demand, as people such as Audrey Silk are leaning towards the cheaper alternative and not cigarettes made by the companies. Here, it resonates with the law of demand, which states that the quantity demanded for a product will increase as the price of product decreases. The particular statement also talks about competition, as Americans are preferring to make their own tobacco over other brands due to the cheap price. As of now, the smokers in New York seem to be happy while companies such as Parliament Lights are being irritated.

Vocabulary: Demand Curve: A graph showing the relationship between the quantity demanded and the price of a good or service, holding everything else constant Supply Curve: A graph showing the relationship between the quantity supplied and the price of a good or service, holding everything else constant. Determinant of Demand: non-price factors that inﬂuence the demand for a product. Law of Demand: A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa. Competition: Term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services. Surplus: The condition where the quantity produced of a product is greater than the quantity demanded of a product. Total Revenue: The total income (regardless of cost) for a product.

Graph 1: The Market of Cigarettes made by Parliament Lights

This graph is an example of the market of Parliament Light cigarettes mentioned in the summary. With the new source of alternative, the demand curve for Parliament Light's cigarrettes shifts from D1 to D2 and moving the equilibrium from E1 to E2. This shift of equilibrium causes a shift along the supply curve (Qs to Q2). Because of this shift, the total revenue of Parliament light is deducted (the portion lost is Box [0,P1,E1, Qs] - Box [0, P2, E2, Q2].

Evaluation: From my personal opinion, I disagree with Audrey Silk’s actions of having her own source of tobacco. Although there is nothing wrong about saving money, Silk’s method will cause some serious consequences. First off, this new source will definitely make the tobacco firms lose a decent amount of profit; as a result, some employees who work in that industry might be fired which in return will start new problems in the general market. Secondly, many governments are earning a portion of their total income from taxations on tobacco. If people are growing their own tobacco and start buying less and less official approved cigarettes, then that means that the governments will lose a huge amount of income. In return, the governments will then have fewer budgets on giving subsidies on certain areas. A possible solution for this problem is that the government sets taxations on the supplies that people use to grow their own tobacco; this then will help recover the lost revenue suffered by the government. Furthermore, the government can also solve this phenomenon by setting up certain laws restricting people from growing their own crops. According to the article, “ there are no federal, state or city laws prohibiting New Yorkers from growing tobacco at home for personal consumption”. By setting up legal barriers, it will help avert some unnecessary crisis.