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Tobacco Market Assignment PDF

Added on - 18 Jun 2021

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Tobacco Market(1)Can the market for cigarettes be considered a perfectly competitive market? Explain youranswer, referring to at least three characteristics of this type of market structure.Some of the major characteristics of the perfectly competitive market are follows:In a perfectly competitive market the seller of the products are the price takes and sells theproducts at a price that is decide d by the forces of market demand an d market supply ofdemandThere are a large number of producers in the market and the contributions of such large numberof producers are insignificant with respect to the total supply of the market and therefore theindividual producers cannot change or affect the total supply or supply curve of the marketAll the producers are producing the homogenous products and the entry and exit with respect tothe market is free.The Tobacco Market of Australia to great extent posses the characteristics of a perfectlycompetitive market as there are large number of cigarette suppliers as well as producers in themarket who sells the cigarette at apprise that is decided by the forces of demand for and supplyof cigarette in the market.The individual supply quantity of each of the suppliers in the market is insignificant and theproducers of the product are free to take an entry and to make an exit from the market. Thus theTobacco Market of Australia can be described as a perfectly competitive market(2)The article claims that“tobacco tax increases ...may discourage smoking”.Use thesimple demand and supply diagram to illustrate and explain the effects of animposition of
a tax in the market for cigarettes, identifying the changes in consumer surplus, producersurplus and tax revenue.AS described by the above figure in the competitive tobacco market of Australia a tax amount of“TT1”has been imposed and the current tax inclusive price of a packet of cigarette in Australia is$40 which is indicated by P1in the above figure. Due to the imposition of the “TT1” amount oftax the supply curve has strictly shifted in an upward direction from S0to S1.The imposition ofthe tax has reduced the consumers’ surplus, producers’ surplus and the collection of tax revenuecollection of the government has increased1.The consumers’ surplus before imposition of tax =A+B+CConsumers’ surplus after the imposition of tax =AProducers’ surplus before the imposition of tax = D+E+F1
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