Where might I find the answer to the following:
US cigarette makers face enormous punitve damage penalties after a series of class action lawsuits. In spite of these the cigarette makers were able to avoid bankruptcy. I need to explain why and how using elasticity, supply, demand and market equilibrium.
To find the answer to why and how cigarette makers were able to avoid bankruptcy despite facing enormous punitive damage penalties, we can consider the concepts of elasticity, supply, demand, and market equilibrium. Here's how you can explain it:
1. Elasticity: Start by understanding the concept of elasticity, which measures the responsiveness of demand or supply to changes in price. In the case of cigarettes, the demand is relatively inelastic, meaning that changes in price have a minimal effect on the quantity demanded. This is primarily due to the addictive nature of cigarettes, which leads to a stable demand regardless of price changes.
2. Supply and Demand: Next, consider the relationship between supply and demand. In a competitive market, the equilibrium price and quantity are determined by the interaction of supply and demand. If punitive damage penalties were to increase costs for cigarette makers, they might have reduced their supply to compensate and maintain profitability. However, since the demand for cigarettes is relatively inelastic, the decrease in supply would have a limited impact on the quantity demanded and the overall market equilibrium.
3. Market Equilibrium: Market equilibrium occurs when the quantity demanded equals the quantity supplied at a given price. In the case of cigarettes, even though punitive damages could have increased costs for cigarette makers, the overall demand for cigarettes remained relatively stable. Therefore, the equilibrium price and quantity were still maintained, allowing the cigarette makers to continue operating without facing bankruptcy.
In summary, the ability of cigarette makers to avoid bankruptcy despite facing punitive damage penalties can be explained by the inelastic demand for their product, which enables them to maintain market equilibrium even with increased costs.