Economic Profile for the Tobacco Industry

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Tobacco Industry: Economy and economic influences

Economic influences that can affect the tobacco industry in a negative way:
Inflation will have a negative impact on the tobacco industry because the nominal cost of cigarettes will increase as a result of which, the nominal prices will also increase. Thus, the demand for the tobacco industry will gradually decrease. (Federal Trade Commission Evaluation of the Tobacco Industry Analysis Submitted to Congress on October 8, 1997)
High inflationary situation will discourage the manufacturers to take risks that are involved in investing for future reduction. Also, during inflationary period, people are encouraged to hoard large stock of goods because it is quite profitable. This will lead to a reduction in the supply of goods and will ultimately lead to black marketing.
Besides this, the increase in the tax rates will also have a negative impact on the tobacco industry because the prices of tobacco will increase leading to a decrease in the demand of tobacco.
How the economy affects the success of the tobacco industry
The US economy is in a state of recession. The value of dollar in terms of other currencies is falling significantly. The growth in the U.S. economy has slowed down since last spring owing to the housing slump. Presently, the US economy is facing tough competition from the new growing economies such as China and India. These countries are joining together with other countries like Russia and Brazil, in terms of business to form BRIC.
This will ultimately impact the tobacco industry because during recession, the prices will fall and the demand will initially remain the same but will diminish slowly.
Besides, the government intervention in the market will also affect the demand for tobacco in the market and ultimately the success of the tobacco industry. Suppose the government sets a maximum limit or a price ceiling for tobacco, the manufacturers would have to sell their products at that price and they would not be able to raise the prices above that. Thus, it will adversely affect the growth of the tobacco ...