Analysis
Discuss about the Economics for Business.
Smoking cigarettes have been a common habit among the Australians. The adult smoking rate includes those who are daily smokers. The current adult smoking rate of the economy has relatively decreased than what it was some years earlier. This reduction in the smoking rate of the people can be a result of various reasons. Smoking is rather considered injurious to health, a practise quite famous among the young population that hampers the respiratory system of the human, thereby resulting into a number of diseases.
In this essay, news on the current consumption and market for cigarettes has been analysed, which has helped in exploring the factors affecting demand and supply of cigarettes, thereby analysing the nature of the product and its elasticity (Economist.com 2016). The factors that affect the demand of cigarettes would be considered from the consumer’s point of view, whereas, the factors affecting the supply of cigarettes would be considered from the producer’s point of view. Depending upon the demand and supply of the product, the elasticity of the product would be analysed. Government measures that have been initiated in Australia that affect the production of cigarettes in the society is also taken into consideration.
Demand and supply of a particular product play crucial role in determining how it would be analysed in the market. Demand of a product is the want of the consumer by considering his purchasing power capacity. There are various factors that affect the demand of a particular product (Von Stackelberg 2012) .
2.1. Determinants of Demand
In this context, the factors affecting the demand of cigarette are as follows :
Price of cigarette – price of a product is negatively related to the quantity demanded of the product. As the price of cigarettes rises, the demand for cigarette falls.
Income of the consumer – cigarette is not a necessity, nor an inferior good. Hence, it can be stated that as the income of the consumer rises, people are able to fulfil their demand more. Hence, income of the consumer and quantity demanded for cigarettes are positively related (Thompson and Formby 2013).
Taste and preferences- taste and preferences of the people determine the demand for a product. Any person may have a personal preference for a particular product, as in this case, cigarettes. This preference might raise the demand for cigarettes in the society.
Determinants of Demand
Substitutes – cigarettes being considered injurious to health, has been substitutes by various other innovative products that could reduce its consumption in the society. The availability of these substitutes like nicotine chewing gums and herbal cigarettes has been able to reduce the demand for cigarettes largely.
2.2. Determinants of Supply
Supply side of the product determines the amount of product a producer is willing to supply in the market for sale (Armington 2013). The factors that affect the supply of cigarettes in the country are as follows:
Price of the product – the price of the product act gives a positive impact on the supply of cigarette. As the price of the cigarette increases, producers are walking to sell more and vice versa.
Cost of inputs- cost of inputs such as cost of labour and raw materials acts negatively on the quantity of cigarettes supplied in the economy. With the rise in the cost of inputs, the production cost increase, which thereby reduces the supply of the product (Blanchard and Quah 2013).
2.3. Effect of demand-supply analysis
The law of demand portrays the negative relation between the price of cigarettes and the quantity demanded, all the other factors affecting demand remaining constant. This results in a downward sloping demand curve. Comparatively, the law of supply states the positive relation between the quantity supplied of cigarettes and the price of the product. This portrays the positive slope of the supply curve. The intersection of both the demand and the supply curve depicts the equilibrium price and demand of the cigarettes in Australia.
Figure 1: Equilibrium Of Price And Quantity Of Cigarettes
(Source: As Created By Author)
In figure 1, D and S are the initial demand and supply curves for cigarette in Australia. The two curves intersect, corresponding to which, Pe and Qe are the equilibrium price and equilibrium quantity, where the quantity demanded of cigarette is equivalent to the quantity supplied.
The elasticity of a particular product measures the effectiveness of the quantity demanded of the good with respect to the change in its price. When products are elastic in nature, the change in quantity is greater than the change in price, whereas, inelastic goods show negligible change in output with a larger proportion of change in the price. Cigarette is such a good, where with a slight rise in the price, the people would reduce its consumption. Hence, it could be stated that cigarettes are relatively elastic in nature. A relatively elastic demand curve is flatter in nature as shown un figure 2.
Determinants of Supply
Figure 2 : Elasticity Of Demand Of Cigarettes
(Source: As Created By Author)
In figure 2, D is the demand curve of cigarettes which is a flatter demand curve. Initial price in P1 which correspond to the quantity demanded D1. As the price of the products rises from p1 to p2, there is a fall in the quantity demanded of the products from q1 to q2. This fall in quantity demanded is greater than the fall in price. this shows the relatively elastic supply curve where the value of elasticity is more than 1.
2.4. Government Measures
Smoking cigarettes have been stated as harmful consumption made by the people that may harm the health of the consumer and develop several disease in them. The government has taken various initiatives in order to lower the consumption of cigarettes in the country. The government has take the initiatives of smoke free cares, graphic health warnings, plain packaging, products under the counter, tobacco tax, health act regulation and updating the tobacco advertising prohibition act.
In many places of Australia, initiative have been taken by the government to prohibit the use of smoking in cars, especially when children are present in them. Inclusion of Graphic health warnings have been advised to all the manufacturing companies of cigarettes by the government on the packs of the cigarette boxes. his would warn the consumer’s before the consumption of such products. Plain packaging has been one of the most vital selections made by the government in order to reduce the attractiveness of the packet of the product and avoiding the products to keep the product below the table (The Economist. 2016). The government that have been framed in order to reduce the demand of the product has passed laws.
Tobacco tax has been raised, which raises the cost of production of the people. On 1st December, 2013, the excise duty on tobacco would rise by 12.5 percent, which raises the price of the pack by $1.10. The law has been initiated by the government, which states that the excise duty on tobacco would rise after every three years. Health regulation act under the name of poisons act have been reviewed in the year 2002 (Ramsey 2012). The tobacco advertisement prohibition act has been framed by the government, which aims at imposing limitations on the exposure of Australian public to tobacco advertising through mass media forms of marketing.
Figure 3: Changes To Smoking Behaviour In Australia
(Source : Health.gov.au. 2016)
All these methods undertaken by the government has been able to reduce the demand of consumption of cigarettes largely. This has affected the quantity demanded of the organization, thereby reducing their demand for cigarettes. People have become more fitness oriented, which violates the tastes and preferences of the consumers in the society.
Conclusion
The current adult smoking rate of Australia has relatively decreased than what it was some years earlier. This reduction in the smoking rate of the people can be a result of various reasons. Smoking is rather considered injurious to health, a practise quite famous among the young population that hampers the respiratory system of the human, thereby resulting into a number of diseases. The factors affecting the demand and supply of cigarettes in a country has helped in analysing the factors that have affected the market for cigarettes in the country. Cigarettes has been analysed as a relatively elastic commodity, where a slight change in price has left a greater affected on its quantity demanded. The government of Australia has analysed various measures that have helped to reduce the consumption of cigarettes in the country. This has been quite beneficial effect in the economy, yet it has affected the business of the manufacturers of cigarette in a negative way.
References
Blanchard, O.J. and Quah, D., 2013. The dynamic effects of aggregate demand and supply disturbances . A theory of demand for products distinguished by place of production. Staff Papers, 16(1), pp.159-178.
Economist.com. (2016). Cite a Website – Cite This For Me. [online] Available at: https://www.economist.com/news/britain/21646315-no-more-branded-cigarettes-pack-it [Accessed 27 Nov. 2016].
Health.gov.au. (2016). Department of Health | Tobacco Control key facts and figures. [online] Available at: https://www.health.gov.au/internet/main/publishing.nsf/Content/tobacco-kff [Accessed 27 Nov. 2016].
Ramsey, F.P., 2012. A Contribution to the Theory of Taxation. The Economic Journal, 37(145), pp.47-61.
The Economist. (2016). No logo. [online] Available at: https://www.economist.com/news/business/21703424-big-tobaccos-controversial-ailing-crusade-against-plain-packaging-no-logo [Accessed 27 Nov. 2016].
Thompson, A.A. and Formby, J.P., 2013. Economics of the firm: Theory and practice. Pearson Educacion.
Von Stackelberg, H., 2012. The theory of the market economy. Oxford University Press.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
