Price Elasticity Of Demand Of Tobacco Economics Essay

We would like to express we special thanks a lot for gratitude to your lecturer Neglect Liew to give our possibility to learn and practise to do this wonderful task on the topic Microeconomics task in semester 2 during in August to December 2010. And thankful to Neglect Liew for coaching and giving lecture, and her coaching composition is very interesting and it is simple to focus in her lecture and also to know about so many new things.

A small of finely trim tobacco leaves enfolded in a cylinder of thin newspaper for smoking is recognized as cigarette. At one of the smokes is ignited and it is permitted to smoulder; the other end it is where the smoke cigars is inhaled, which is placed in or even to mouth and occasionally a cigarette holder can be utilized as well. Designed smokes are filtered in the most modern and include reconstituted cigarette and other addictive.

The source of cigarette is assumed that it took place in America. In America is where in fact the production of tobacco began. Additionally it is where people started eating its leaves for smoking and chewing. The Maya civilizations were considered to be the first users in Central America. In SOUTH USA, the people of Aztecs followed suite and crushed tobacco leaves, covered them in corn husks to smoke cigarettes. During spiritual ceremonies, this was more popular, which is related to the fact that in local pottery of the region priests and deities were shown smoking through pipes.

Price elasticity of demand (Ed) is a measure of the responsiveness of amount demanded to improve in cost, in the other words, it's the ratio between an alteration in price and the resultant change in variety demanded. The formula is really as. The demand for a good service is elastic or relatively stretchy whenever a given change in price is accompanied by a bigger proportionate change in quantity demanded. This implies the ratio change in amount demanded is higher than the percentage change in price. The demand is inelastic or relatively inelastic whenever a given change in cost is accompanied by a smaller proportionate change in number demanded. This means the ratio change in amount demanded is significantly less than the ratio change in cost.

Referring to the diagram above, when the price tag on cigarettes increases from P1 to P2, the quantity demanded for smoking diminishes from Q1 to Q2. The elasticity of the demand curve can be dependant on solving the purchase price elasticity of demand of cigarettes, , . This is because when the price tag on elasticity demand (PED) is significantly less than 1, it can be an inelastic demand curve diagram. The diagram is an inelastic demand curve because the price tag on elasticity demand (PED) is less than 1. Thus the diagram is flatter. The demand for smokes is inelastic because of the addiction of specific towards cigarettes. Thus no matter how much the price boosts, the demand for smoking cigarettes will only land somewhat.

The new polices would arranged the minimum amount retail price for a stay of cigarette at 32 cent. Currently, a load up of 20 sticks cost RM 9. 30 but cheaper smoking cigarettes that cost as low as RM 4. 80 per load up can be purchased in the market. If the cigarette was established to the minimum price, that must definitely be have some aftereffect of setting the minimal retail price. For example, if the demand can be an inelastic, the way to obtain cigarette will increase and the price is permitted to fall. So, the fall season in price will lead to a land incomes to producers. When the price is effective by the minimum prices, the purchase price must be placed above equilibrium price as shown in the diagram below. This is because the government seems the price is too low in the market. Therefore, intervenes to establish the very least price that is higher than the equilibrium price to keep the income of makers.

When the lowest price is defined, the surplus will be happen. The discourage ingestion as the nice is now more expensive but it will encourage the development. The development will be encourage is cause by the nice is more profitable. Besides that, to get over the surpluses resulting from minimum prices, the federal government may encourage the demand by buying in the surplus, advertising and finding alternate uses for the goods and reducing the option of substitute.

Future of the united states, government must increase the price of tobacco because the move was be in line with governments commitment to protect children and teenagers from taking up the smoking behavior and exposing themselves to long-term diseases and taking drugs. This is to ensure the future generation to increase up in a healthy environment with healthy mind and body which can help in the introduction of the country.

Cigarettes will lower the personality image, because many people dislike the action take cigarettes to smoke cigarettes and dislike the smell surrounding the people. People could keep away with the folks who are having smoking habit. Furthermore, foreigner will not come to our country whenever there are many smokers and it'll ruin the trustworthiness of the country thus the foreigner will not come to your nation to invest their bills.

Increase the smoking cigarettes can help low income level people. Because when these people don't have more money to acquire cigarettes and also to do other thing like sport, working, volunteer.

Government may impose immediate fees or indirect fees. Direct fees are fees paid by individual or organisation. Example of direct taxes is personal income tax and corporate duty. Indirect fees are fees on expenditure. Example of indirect taxes is fees on goods and services. A particular taxes or a device tax is tax that does not change with price but is a fixed amount per unit sold. The taxes are based on the elasticity of the curve.

Referring to above diagram, at the initial equilibrium point a, if the unit tax is ad, total tax total be paid to the federal government is ad x 0Qo. However, the resource curve shifted left because of this of taxes, the new equilibrium is currently at point c. The quantity of tax to be paid is currently bc x 0Q1, which is equivalent to bcP1P2. Consumer tax reaches P1cfP0 while producer tax is at P0fbP2. In cases like this, producer pays more tax than consumer. The producers will acquire less profit and the consumers need to pay more.

Besides the minimum amount price, the other government intervene are maximum price and the per product tax. About the maximum price, government units this intervene to avoid them from increasing above a certain level. When a maximum price is released, sellers are allowed to change any price up to price level but retailers are not permitted to exceed it. When the maximum price is set, shortage while be occur. The utmost price will encourage ingestion as the good is now cheaper but it will discourage production. It really is cause by the good is less profitable to create. In order of maximum price to work, government must by placed below the equilibrium price as shown in the diagram below. -

Another government intervention is per unit tax. Concerning this intervention, federal may impose the direct taxes or the indirect taxes. The direct taxes are paid by specific or corporation, for example personal income tax and personal corporate taxes. The indirect taxes are paid by companies of the good or service to the government nevertheless they can shift the responsibility of the tax to consumer by means of higher prices. Whenever a unit taxes is enforced, the production of designers cost will raise and shifts the resource curve upwards by the same amount of taxes. The diagram below is show the effect of a unit tax on source curve.

From the above mentioned diagram, the equilibrium price of in the beginning was Pe and equilibrium variety is Qe. Following the imposition taxes, the source curve was shifted still left and the new equilibrium price is higher but the new equilibrium quantity is lower. It is clear that the result of taxes is to increase price and reduce quantity. The next diagram below is show the company shift the taxes burden to the buyer.

In this project, we notice that the price for the tobacco keep changes every once in awhile which is directly affect the demand of the smoking. For example, when the price of cigarettes per package rises, the demand for smoking cigarettes lessens because people are unable to spend the money for price of tobacco. This will causes surplus of the stock for smoking on the market. When the price for cigarette smoking per box lowers, the demand for cigarettes increases because people are affordable to the price tag on the cigarettes. This may lead to shortage of the stock for cigarette smoking on the market. However, there will be negative when the costs of tobacco reduced as increasingly more of the people addicted to smoking.

In this project, we find out more and much more understanding about the elastic of demand and much more obviously how to compute the price elasticity of demand. Besides that, tell us the result of establishing the lowest retail price of the stay of cigarette. We also find out more about the government treatment and the result of government treatment in the market. Furthermore, through this assignment let us more learn how to get the diagram like maximum price, minimum price, per unit tax etc. This task also can let us have more confident in our final exam.

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