Business Economics Report: Australian Cigarette Market Analysis

This report provides an analysis of the cigarette market in Australia, focusing on the factors influencing demand and supply. It examines the determinants of demand, such as price, income, and consumer preferences, as well as supply determinants like goods price and input costs. The report includes ...Read More

Running head: BUSINESS ECONOMICS
BUSINESS ECONOMICS
Name of the Student
Name of the University
Author’s note

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Table of contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Demand determinants..................................................................................................................3
Supply determinants....................................................................................................................4
Analyzing the result of demand and supply of certain product...................................................4
Measures taken by the government.............................................................................................6
Conclusion.......................................................................................................................................7

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Introduction
The Australians have a common tendency of smoking cigarettes. The smoking rate of the
adult includes the persons who are regular smokers. At present, the smoking rate of an adult of
this nation has declined as compared to previous few years (Clarke and Prentice 2012). This
essay reflects on the present consumption of cigarettes and its market. It also facilitates in
investigating the factors that influences cigarettes demand and supply. In addition, the product
nature and its demand elasticity is also discussed in this study. Moreover, the elasticity of
cigarettes has been assessed according to its current demand and supply. Few measures adopted
by the Australian government that affects the cigarettes production is also explained in this
study.
Discussion
The market is analyzed based on the demand and supply of a particular product. Product
demand refers to the consumers wants that considers their capacity of purchasing power. There
are different variables that influence products demand discussed below.
Demand determinants
Cigarette price- Goods price is inversely related with the demand for quantity of the good.
Therefore, increase in cigarettes price leads to fall in demand for cigarettes.
Customer’s income level- As cigarette is a luxury good, the individuals satisfies their demand
if their income level rises. Thus, the purchaser’s income and the demand for quantity of
cigarettes are positively related with each other.

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Consumers taste and preference- The demand for a particular good also depends on the
consumer’s tastes and preference. The preference for cigarettes varies among the individuals.
This change in preference might increase or decrease the cigarettes demand in the market.
Supply determinants
Supply of commodities refers to the total commodity that the manufacturer is eager to supply in
the current market. Few variables that influences the cigarettes supply are illustrated below:
Goods price level- The commodity price provides a positive effect on the cigarette supply.
Therefore, as the cigarette price increases, the manufacturers strategize in selling more good and
vice-versa (Callard and Collishaw 2013).
Input costs- The input cost including the labor and raw materials cost acts in negative way on
the supply of total amount of cigarettes in the society (Newbold et al. 2012). However, the cost
of production increases with the increase in input cost, thereby decreasing the product supply.
Analyzing the result of demand and supply of certain product
According to law of demand, the cost of cigarettes is negatively related with the demand
for its quantity with other factors influencing product demand remaining stable. As a result, this
leads to negatively sloped demand curve (Koo 2013). On the contrary, the law of supply depicts
positive relationship between the supply of total quantity of cigarettes and its price. Therefore,
this reflects positive sloping supply curve . The market equilibrium occurs when the demand for
product intersects with the supply of product. This portrays the equilibrium price of the cigarettes
and its quantity demanded in Australia.

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D
S
S
Quantity demanded of cigarettesQe
Pe
Price of cigarette
D
Figure 1: Equilibrium price and quantity demanded of cigarettes
Source: (As created by author)
In the above diagram, DD represents the demand curve for cigarettes and SS depicts
cigarettes supply curve (Rios et al. 2013). The intersection of these two curves corresponds to
equilibrium price of cigarettes shown by Pe and its quantity demanded reflected by Qe.
Elasticity of a certain good signifies the sensitivity of demand for quantity of product in
respect of its price change. In case of elastic goods, the change in demand for its quantity
becomes higher than its price change (Scollo et al. 2014). Cigarettes are such kind of product in
which small increase in its price leads to reduction in its total consumption. Hence, this portrays
that cigarettes are elastic good. The figure shown below reflects demand curve of elastic product
such as cigarettes.

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Quantity of goods
Product price
D
D
P1
Q1
P2
Q2
Figure 2: Demand elasticity of cigarettes
Source: (As created by author)
In this diagram, cigarettes demand curve is flatter than original demand curve. Cigarettes
initial price (P1) corresponds to the demand for its quantity (Q1). However, as price of cigarettes
falls from P1 to P2, the demand for its total quantity rises from Q1 to Q2.
Measures taken by the government
The Australian government has taken an initiative in prohibiting smoking in public
places. They also advised the cigarettes manufacturing entities to include graphic health caution
on the cigarette packets (Bauer 2014). In addition, Australian government raised tax of
cigarettes and hence the cost of cigarettes production. They also adopted a law of increasing
tobacco excise in three years gap. The prohibition act of tobacco advertisement is also designed
by the government that aims to impose restraint on exposing public to its advertisement through

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media. These policies adopted by Australian government have reduced cigarettes consumption
and this declined its demand.
Conclusion
Recent statistics reflect that smoking rate among adults in Australia reduced in 2017 as
compared to 2016. The variables influencing cigarettes demand and supply in the nation has
facilitated in assessing the market change for cigarettes. As cigarettes is analyzed as elastic
product, small change in its price impacts on its quantity demanded in higher way. Thus,
Australian government has implemented various measures for decreasing cigarettes consumption
in the nation.

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References
Bauer, M.J.R., 2014. Principles of microeconomics.
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Callard, C.D. and Collishaw, N.E., 2013. Supply-side options for an endgame for the tobacco
industry. Tobacco control, 22(suppl 1), pp.i10-i13.
Clarke, H. and Prentice, D., 2012. Will plain packaging reduce cigarette
consumption?. Economic Papers: A journal of applied economics and policy, 31(3), pp.303-317.
Koo, D., 2013. Elements of optimization: with applications in economics and business. Springer
Science & Business Media.
Newbold, P., Carlson, W. and Thorne, B., 2012. Statistics for business and economics. Pearson.
Rios, M.C., McConnell, C.R. and Brue, S.L., 2013. Economics: Principles, problems, and
policies. McGraw-Hill.
Scollo, M., Zacher, M., Durkin, S. and Wakefield, M., 2014. Early evidence about the predicted
unintended consequences of standardised packaging of tobacco products in Australia: a cross-
sectional study of the place of purchase, regular brands and use of illicit tobacco. BMJ
open, 4(8), p.e005873.