Decrease in the Quantity Demanded of Cigarettes due to the Increase in Taxes

Added on -2020-02-18

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Exercise 1a)There will be limited impact on government revenue since there will be a decrease in the quantity demanded of cigarettes due to the increase in taxes. For this reason there will be aless than proportionate effect on the tax revenues charged.b)The teenagers are more price elastic since they have limited income at their disposal hencethey have to work around their budgets in order for them to have maximized leisure. Also,the teenagers may engage in smoking in order to look cool and therefore may not be heavily addicted to its use.c)Lower income groups may feel the effect of the increase in price more than the higher income groups and therefore they may be more sensitive to the price changes. ON the other hand, the high income groups may be affected less.d)Increase in taxes makes the cost of engaging in the practice more expensive. This thereforeincreases the amount of income that is used for cigarrete smoking and therefore the budgetary allocation is adjusted.e)The tax on cigarettes increases the quantity supplied of the cigarettes. This is because the firms may expect a price increase which may increase their surplus. This may result to a decrease in the equilibrium price since there is limited increase in the demand for the cigarettes.f)The taxes have a negative effect on the welfare of the individuals. This is because the budgetary allocation is affected which may influence other purchases of the homes of those individuals.g)Yes there is need for a broader definition. This is because there is need to assess the impact of the levied taxes not only on health but also on the budget.h)PriceQuantity

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