Employee Benefits and Cigarette Makers Penalties
Understanding consumer behavior and market equilibrium is essential for understanding economics (McEachern, 2011). The first section of the paper explores the concept of employee benefits, illustrating how the theory of consumer behavior can be used to explain decision-making regarding choosing flexible employee benefits. The second section of this article explains how the U.S cigarette makers managed to manipulate the concepts of market equilibrium and product elasticity to decrease bankruptcies brought about by penalties.
Key Words: Employee Benefits, Theory of Consumer Behavior, Cigarette Makers
Penalties, Elasticity, Demand, Supply, Market equilibrium
Providing benefits for employees is part and parcel of any organization culture that is aimed at reimbursing employees for their services to an organization (Wessels, 2000). Progressively, employees can opt for basic or optional benefit items ranging from medical and life insurance to retirement benefits. However, owing to the nature and relevance of the benefits, some employees may prefer to receive more wages than benefits, whereas, others prefer more benefits than wages. Employees who recognize the significance of the benefits offered tend to decide on benefits, and those who do not understand the benefits play it safe and select more wages. This inclination of decision-making may be explained through the theory of consumer behavior, which emphasizes the amalgamation of goods to create paramount unity and satisfaction for consumers (Blythe, 2008). In economics, consumer behavior refers to the study of the consumer decision-making processes. Economists are interested in finding out why, how, when and where consumers opt for some products and services over others in an attempt to influence their decisions.
The concepts of the theory of consumer behavior imply three facets of a consumer’s decision-making process including, utility maximization, associated costs, and preferences (Blythe, 2008). Just as the consumer, an employee is a rational individual who will invest their time in attaining products that provide the individual with the greatest amount of satisfaction. While consumers want to get the most for their money, an employee wants to receive the most for their services to an organization. In essence, the associated cost of the benefit offered will determine the choice for benefits over more wages. Employees behavior and consumer behavior is similar in that they tend to choose the most satisfying combination of benefits based on the partiality of the prices for the benefits. Conclusively, employees’ decision concerning benefits or salaries is, principally, determined by individual preferences. Employees will choose the option that satisfies their needs, both at present and in the future. However, this all draws back to employee comprehension of the benefits offered. Those who understand the hidden values of benefits may choose to receive benefits, as opposed to, more wages. Employees who choose more wages feel that more salary provides them the most satisfaction for their services to the organization.
Cigarette Makers Penalties
Over the last few years, U.S. cigarette manufacturers have been faced with plenty of lawsuits and damage penalties, which led to the loss of billions of dollars by companies (AllBuiness.Com, 2005). Additionally, economists suspected bankruptcy by cigarette manufacturers but recent information from the wall street journal suggest otherwise. U.S Cigarette manufacturers successfully managed to recover their financial losses through the increase of prices for their products. Essentially, they manufacturers use the concepts of demand, supply, elasticity, and market equilibrium to pull this off successfully. In economics, product demand refers to the amount of a product that consumers are willing to purchase. Supply, on the other hand, refers to the amount of a product that manufactures produce for their consumers in the market. Coupled with each other, demand and supply make up the market equilibrium concerning the utilization of a product in the market (Wessels, 2000). Lastly, product elasticity refers to a product’s reactivity to a change in price. At the outset, cigarette manufacturers are aware that, as products, cigarettes are highly inelastic owing to the addictive nature of the product. Put simply, no matter how much the price of the product increased or decreased, the demand for the product would remain the same. Cigarette manufacturers, therefore, increased the prices of cigarette to cut back on their losses. The demand for cigarette continued to soar even with the increased prices, which, in turn generated more income for the manufacturers.
Blythe, J. (2008). Consumer Behavior. USA: Cengage Learning EMEA.
“Cigarette Makers Protest Justice Department Penalties.” allbusiness.com. Retrieved from:
McEachern, W. A. (2011). Economics: A Contemporary Introduction. USA: Cengage Learning.
Wessels, W. J. (2000). Economics. New York: Barron’s Educational Series.