In this research paper two empirical methodologies are used for studying the relation between cigarette price and cigarette consumption in America with available statistical information. The purpose of the paper is to investigate whether the price of cigarette is a powerful method for cutting cigarette consumption. The statistical information used in the paper is collected from 48 U.S. states over the period from 1985 to 1995 for examining the effect of cigarette price and others independent variables on cigarette consumption. Ordinary least squares (OLS) regression model and Least square dummy variable model are used to determine effect of cigarette price. Furthermore, other factors such as GDP per capita, population and Consumer price index (CPI), have been added into the model to attest to their potential nexuses with cigarette consumption. The result of the report shows that any increase in the price of cigarettes will decrease personal consumption of cigarettes. Higher prices increase costs to consumers and discourage cigarette consumption. The percentage decline in consumption caused by a percentage increase in price is measured by price elasticity of demand. Based on the analysis, it could be safely concluded that increasing price is still an effective instrument for cutting down the cigarette consumption.
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